The fight in the U.S. legislature over new cryptocurrency tax-reporting requirements in the Biden Administration’s huge infrastructure bill has continued to get weirder. After industry objections to a flawed initial proposal, there are now two competing amendments about how to scale back its demands. According to the Washington Post, the dispute is now holding up the entire $550 billion bill.
We’ll get into the details but first, take a moment to reflect here. For those of us who’ve been around a while, the fact that anything crypto-related has become the linchpin of such a key piece of legislation is a huge landmark, especially given the technology is only a decade old.
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Now quit patting yourself on the back, because I think the house may be on fire.
The whole thing started last week when legislators added new reporting requirements for cryptocurrency brokers as part of the “pay-for” of the infrastructure bill. But the language was so broad and flawed it could have roped in cryptocurrency miners, software developers and other entities who are clearly not “brokers” in any meaningful sense. To be clear, the objection to the provision wasn’t that it would impose taxes on crypto, but that the reporting requirements were technically flawed.
Things seemed to take a turn for the better on Wednesday when Senators Pat Toomey (R-Pa.), Cynthia Lummis (R-Wy.) and Ron Wyden (D-Ore.) filed an amendment refining and scaling back the rule’s definition of a broker, including carve-outs for node validators (miners), software developers and wallet developers. That amendment, though not perfect, received widespread praise from industry figures including CoinShares Chief Strategy Officer Meltem Demirors and Jerry Brito, of lobbying group Coin Center.
From that moment of hope, the situation has rapidly degraded.
A second proposed amendment to the tax was introduced last night by the provision’s original authors, Rob Portman (R-Ohio) and Mark Warner (D-Va.), joined by Kristen Sinema (D-Ariz.). University of Chicago tax specialist Daniel Hemel reviewed the two proposals last night and concluded the main difference is the Warner-Portman-Sinema amendment is narrower. It specifically protects proof-of-work miners and wallet developers, but not protocol developers.
As Hemel observed, it seems very weird the U.S. government would write legislation favoring proof-of-work mining (e.g., bitcoin), given the widely acknowledged need to at least explore more environmentally friendly consensus algorithms. It certainly contradicts SEC Chair Gary Gensler’s recent commitment to be “technology neutral.” Not that Gensler has any formal power in this process, but you might think he had a bit of influence as a well-informed regulator.
I’m speculating here, but the proof-of-work carve-out might be based on a misapprehension that PoW is somehow inherently and uniformly more decentralized than proof-of-stake systems. Based on the language in the draft, there’s also another, funnier possibility. The Portman-Warner-Sinema tweak creates a carve-out for entities “validating distributed ledger transactions through proof-of-work (mining).” One way to read the line is that someone thinks “proof-of-work” and “mining” are the same thing.
To be clear, I find that funny in a very bleak and depressing way.
The worse news is that support for the still-basically broken Warner-Portman-Sinema version of the amendment is worryingly strong. The White House has issued a statement in support. Treasury Secretary Janet Yellen has reportedly been lobbying for the bad version, too. That would seem to back rumors that Treasury had been involved in crafting the original language, perhaps as a shortcut to imposing reporting requirements on which it had already been working.
Meanwhile, the generally high-pressure environment around the bill leaves little time for nuanced debate and education. A vote on the full bill is now expected on Saturday.
There will be new, tiny-yet-crucial developments on the provision today, probably before I even publish this piece. Figures including Senator Lummis are calling for public pressure to support her version of the provision, and that may be the most important factor in what happens next. So if you feel strongly about this, call your senator. This tool from Fight for the Future makes it easy (h/t to Meltem).
I’ll just close by again pointing out how mind-boggling – and dare I say, big-picture bullish – is the situation. This huge bill is one of the signature pieces of legislation for the new Biden Administration, one of the things that is expected to cement some kind of larger legacy. And it’s being disrupted by an extended fight over magical internet money.
In other words: We made it, fam. Now we just have to keep it.