US President Joe Biden has proposed major changes to the tax rules surrounding crypto, but the plan first has to be negotiated and approved by Republican-controlled Congress.
Biden’s proposal on crypto taxes is part of his budget plan for the 2024 fiscal year, which is expected to be unveiled on Thursday this week, the Wall Street Journal reported.
Included in the budget is a new minimum tax on so-called unrealized capital gains of 25%, which could potentially hit some American high-net-worth crypto owners hard. That proposal has been known for some time and has in the past been ridiculed by the crypto community given the wild swings in the valuation of major digital assets from one year to another:
Meanwhile, the tax on ordinary realized capital gains will be doubled from 20% today to 40% under the new proposal, which could also hit crypto owners hard.
A capital gains tax of 40% would be very high by international standards, with most European countries taxing this type of income at a rate between 20 and 30%.
Among the other changes is an attempt to prevent crypto holders from engaging in so-called ‘loss harvesting’. The technique involves selling underwater crypto holdings before year-end and then buying the same coins back again shortly after in order to deduct the loss from the tax bill.
The same proposal was discussed in the last Congress but did not pass at the time.
The proposed changes to the tax treatment of crypto is expected to generate $24 billion in revenue for the government.
Overall, the proposed budget is said to cut the federal budget deficit by nearly $3 trillion over the next decade.
Unlikely to pass
According to the newspaper, however, the proposed budget is not likely to pass, given opposition from Republican members of Congress. Still, a months-long negotiation process with Republicans is now set to begin.
In addition to the changes that affect crypto, the proposed budget also reportedly includes a higher income tax rate on people earning more than $400,000, as well as significant changes in sectors such as healthcare, corporate taxation, and a boost to defense spending.
Commenting on the increased personal income tax for high-earners, however, Republican Senator Mitt Romney promised that it’s “not going to happen.”
“Obviously, he knows that. Republicans are not going to sign up for raising taxes,” Romney said.
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