Elon Musk joins criticism of the expanded US cryptocurrency tax plan

Industry representatives opposed the expanded United States cryptocurrency tax plan, notably criticising the Portman–Warner–Sinema amendment.

Coinbase co-founder and CEO Brian Armstrong described the situation as “defining our future” and the amendment as “a catastrophe”. Elon Musk agreed, noting that there is no crisis forcing hurried legislation.

Agreed, this is not the time to pick technology winners or losers in cryptocurrency technology. There is no crisis that compels hasty legislation.

— Elon Musk (@elonmusk) August 6, 2021

“This is an attempt by the government to pick winners and losers in an industry that is just taking shape, where new technologies are being developed every month. […] Imagine if the government decided that iOS is OK but Android isn’t, and that software developers building on iOS could thrive, but Android would be outlawed,” Armstrong wrote.

4/ Imagine if the government decided that iOS is OK but Android isn’t. And that software developers building on iOS can thrive, but Android is outlawed.

— Brian Armstrong (@brian_armstrong) August 6, 2021

The Coinbase chief also likened the passage of the Portman–Warner–Sinema amendment to a scenario in which the largest Internet companies would be built outside the United States.

7/ If the U.S. fails to embrace the innovation happening in crypto, it risks becoming a financial backwater, missing out on one of the fastest growing sectors of the economy. Imagine if we had missed out on the internet, and the largest internet companies had been built overseas.

— Brian Armstrong (@brian_armstrong) August 6, 2021

One of the authors of the crypto-friendly amendment to exempt miners, node operators, software developers and other non-custodial participants from the bill, Cynthia Lummis, said the coming decision would have a “huge” impact on the United States and the international financial future.

A big part of the challenge of explaining this stuff in the Senate is making clear that this isn’t some niche, fringe issue but a HUGE component of the US 🇺🇸 (and international) financial future. Your voices are making clear that financial innovation is a defining issue. https://t.co/90Wy6Xs0PP

— Cynthia Lummis 🦬 (@CynthiaMLummis) August 6, 2021

Co-author of the Lummis–Toomey amendment Pat Toomey called the Warner-Portman-Sinema proposal “horrendous for innovation”. According to him, “two identical activities could receive dramatically different regulatory treatment depending on the technology used”.

The Warner-Portman plan exempts bitcoin miners, but not other transaction validators or software developers who create these platforms.

What does that mean? Two identical services could receive dramatically different regulatory treatment depending on the technology used.

— Senator Pat Toomey (@SenToomey) August 6, 2021

He also urged caution in enacting the bill and, above all, “do no harm”. In his view, the Portman–Warner–Sinema amendment would drive developers to create software outside the United States.

The first principle here should be: DO NO HARM.

The Warner-Portman-Sinema amendment will drive developers to create software outside of the U.S.

I urge my colleagues to oppose it and join me, @RonWyden, and @SenLummis in protecting American innovation.

— Senator Pat Toomey (@SenToomey) August 6, 2021

The partner at Andreessen Horowitz Kate Haun also criticised the Warner-Portman-Sinema amendment. She said that passing the bill in this form would ultimately reduce tax revenues for the United States.

She also noted that she is not opposed to clearer tax regulation in the country, and Coinbase has helped customers meet such obligations for years.

7/ No one is arguing against a clearer tax regime for crypto. Crypto companies like @Coinbase have been helping customers fulfill tax obligations for years. https://t.co/bqvwZGmNDi

— Kathryn Haun (@katie_haun) August 6, 2021

Earlier, experts criticised the bipartisan bill agreed by U.S. senators on July 28, aimed at mobilising $1 trillion for upgrading the country’s infrastructure. Part of the funding will be provided through a tougher regime of cryptocurrency taxation. Senators plan to approve the final version of the bill today, August 7.

The original wording in the bill stated that any entity providing services for transferring digital assets and receiving compensation for doing so must report to the IRS on the activity of its users. In some interpretations, such requirements could extend to miners and node operators in blockchains, wallet developers, DeFi liquidity providers and other non-custodial players.

For example, miners and node operators that validate blocks containing transactions do not have information about the substance of each transfer. They cannot know whether the transfers are trading transactions and who is conducting them. The bill’s requirements are technically unfeasible even if desired.

Senators Wyden, Lummis and Toomey proposed excluding the mentioned activities from the bill and not applying broker-like rules to them. They agreed with Portman, but he himself proposed an amendment that would exclude only miners and sellers of equipment or software that enables individuals to control private keys. The status of PoS validators remains unclear under his proposal.

Portman, in response to the criticism stated, that the bill’s provisions do not touch these categories.

As reported on August 6, The Washington Post wrote that U.S. Treasury Secretary Janet Yellen met with lawmakers to prevent weakening crypto-industry norms.

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