US politics & policy updates
Sign up to myFT Daily Digest to be the first to know about US politics & policy news.
US lawmakers are split over how to tax and regulate cryptocurrency transactions, in a dispute that threatens to slow the passage of Joe Biden’s $1tn bipartisan infrastructure bill.
The White House has called for closing the so-called tax gap — the difference between taxes owed to the US government and those actually paid — through several measures, including requiring large cryptocurrency transfers to be reported to the Internal Revenue Service.
The Biden administration says that the crackdown will raise tens of billions of dollars in revenue and help pay for the president’s ambitious spending plans, including the $1tn infrastructure package that would invest heavily in rebuilding roads, bridges, rail and broadband, among other areas.
The White House has projected that the cryptocurrency reporting requirements alone would generate an additional $28bn for the US Treasury.
But lawmakers are sharply divided over the details of the reporting requirements, in a dispute that has crossed party lines, sparked outrage among investors and stymied passage of the wider infrastructure package.
Senators are expected to work through the weekend and into next week, delaying their planned summer holidays, in an effort to negotiate a compromise on crypto and dozens of other disputed amendments. The final infrastructure bill will also need to be approved by the House of Representatives before it is sent to Biden to be signed into law.
Earlier this week, Ron Wyden, the Democratic senator from Oregon who chairs the Senate finance committee, offered an amendment to the infrastructure bill with Republicans Pat Toomey and Cynthia Lummis to clarify the definition of “broker”.
The senators’ amendment stipulated that “only those persons who conduct transactions on exchanges where consumers buy, sell and trade digital assets” would be required to report to the IRS. The lawmakers said the bill as drafted was too broad, and would place undue reporting requirements on other participants in the industry, such as people mining cryptocurrencies or those selling hardware or software.
But their efforts hit a roadblock on Thursday, when Democratic senators Mark Warner and Kyrsten Sinema, along with Republican senator Rob Portman, offered a competing bipartisan amendment.
Warner’s amendment would likely force tax reporting by developers and so-called validators on blockchains that rely on “proof of stake” networks. The Wyden amendment excludes validators, sellers of software and hardware and digital asset developers that do not maintain customer assets.
The amendment would pose a big threat to ethereum, the blockchain that underpins much of the booming world of decentralised finance. Ethereum plans to convert to a proof of stake system in a set of updates expected as soon as this year.
Bitcoin operates on a different “proof of work” system that uses so-called miners to validate transactions. The Warner amendment explicitly excluded such miners from tax reporting requirements but did not offer any exemptions for proof of stake validators.
In a rare intervention, the White House indicated late on Thursday that it supported the amendment from senators Warner, Sinema and Portman.
Andrew Bates, deputy White House press secretary, said the administration was “pleased with the progress” that “yielded” the senators’ proposal. Bates said the administration was “grateful” to Wyden but the “alternative amendment . . . strikes the right balance and makes an important step forward in promoting tax compliance”.
But the Warner amendment has met stern resistance from cryptocurrency advocates, who say it would push many blockchain projects outside of the US and impose unworkable requirements on developers.
Andreessen Horowitz, one of the largest investors in cryptocurrency start-ups, said the Warner amendment would be a “stunning loss for America and our ability to remain the innovation epicentre of the world”.
“This amendment would stifle innovation here in America, but these decentralised protocols will continue to be built, evolved, and scaled by teams around the world,” the firm said in a statement.
Andreessen previously wrote to Senate leaders in support of the Wyden amendment. The Blockchain Association, a cryptocurrency business group, also supports the alternative amendment.
Toomey told reporters on Capitol Hill late on Thursday that lawmakers were “at an impasse”.
“They want to apply this in a fashion that we think is too broad, it doesn’t work and it shouldn’t be done and will do harm, and they disagree,” he added.
It remained unclear on Friday whether either amendment would be adopted as part of the final legislation, but Jen Psaki, White House press secretary, reiterated the Biden administration’s support for the Warner amendment.
“We believe this provision will strengthen tax compliance in this emerging area of finance and ensure that high income taxpayers are contributing what they owe under the law,” she told reporters, adding the White House would “of course be closely monitoring and closely in touch as discussions continue”.
Rana Foroohar and Edward Luce discuss the biggest themes at the intersection of money and power in US politics every Monday and Friday. Sign up for the newsletter here