Biden’s Nonsensical Proposed 30% Tax Would Kill Bitcoin Mining in the U.S.

The Biden administration recently re-introduced a proposed that would place a 30% tax on all “cryptocurrency miners” – a move that represents an ideological witch hunt against a rapidly growing industry (see my previous comments).

The move, part of the government's budget proposal for the upcoming fiscal year introduced in March, is in stark contrast to recent, pro-crypto statements from former President Donald Trump, who just this week called for the U.S. to dominate the bitcoin mining sector. It remains to be seen whether the crypto mining excise tax will come into effect (or whether Trump will deliver on his aggressive crypto policies if elected), though in recent weeks many have begun to argue that President Biden may be softening on the industry.

See also: Trump's Appeal to Bitcoin Miners Is a Wakeup Call for Crypto to Stay Apolitical | Opinion

It has to be stated that implementing a blanket 30% federal tax on digital asset mining will kill the sector and wipe out billions of dollars of investor value in the United States, and very likely in Canada as well, given how the current Canadian federal administration closely follows U.S. precedents on regulation.

Taras Kulyk is founder and CEO of SunnySide Digital.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

In the “land of the free,” this type of heavy handed Stalinesque central planning directive screams in the face of the democratic ideals (ironically) that are supposed to be espoused by the current White House administration. First, they came for your digital mining and you did nothing…

The fine print on Biden’s proposed tax

The egregious mining tax, implemented despite the billions of dollars invested in the sector, is part of his budget proposal for the fiscal year 2025, which aims to address environmental concerns and regulate the digital asset mining industry. The proposal suggests that the tax would be phased in over three years, starting at 10% in the first year, increasing to 20% in the second year and reaching the full 30% in the third year. This tax is prejudicing digital mining, exclusively, not data centers generally.

The administration argues that the tax is necessary to combat the environmental impacts of cryptocurrency mining, including its high energy consumption and the potential to raise energy prices for communities hosting mining operations, in the face of the well established research that this line of concern is the exact opposite of economic reality and operational impact for power utilities.

While I'm not a lawyer, and these arguments should be taken with a grain of salt, it’s important to note that it is likely unconstitutional for a presidential administration to tax a specific industry's energy usage. There is simply no precedent for it.

By targeting a specific industry with an energy consumption tax, the government could be seen as violating a number of clauses, including The Commerce Clause in Article I, Section 8, Clause 3 of the U.S. Constitution, the Equal Protection Clause found in the 14th amendment, the Due Process clause found in the Fifth Amendment to the U.S. Constitution or under the statute of unintended consequences.

Moreover, there are ethical implications at play beyond any potential unconstitutional overreach. This type of deception has become far too commonplace and is something the U.S. founding fathers were aware of and tried to prevent via the Constitution itself.

How to kill an emerging industry 101

The Biden administration's proposed tax would impose a significant financial burden on digital mining companies, very likely making their operations economically unviable. As these companies already face intense competition and tight margins, this tax would only exacerbate financial struggles and lead to material investor losses.

As a result, many mining firms would likely be forced to shut down or relocate to other countries with more favorable tax policies, leading to job losses and reduced economic activity in the United States.

Moreover, the proposed tax would disproportionately affect smaller digital mining operations, which may not have the resources to absorb the additional costs or move to other jurisdictions. This would create an unleveled playing field, favoring larger, more established mining companies and stifling competition and innovation in the sector as well as increasing centralization for larger operators.

If this administration’s goal is to hurt small businesses, stifle innovation and develop a reputation for reducing economic activity in the U.S, then they are right on track.

Environmental concerns and the ineffectiveness of the tax

The Biden administration claims that the proposed tax is necessary to address the environmental impact of bitcoin mining, as it consumes significant amounts of electricity. However, this argument overlooks the fact that many mining operations already use renewable energy sources and are actively working to reduce their carbon footprint.

Furthermore, the proposal does not take into consideration use of methods like methane flaring, which reduces the CO2-equivalent emissions by about 63% when compared to traditional methods of flaring methane, and landfill mining, which in one year has the same effect of planting five million trees and letting them grow for 10 years. Bitcoin mining has been proven to strengthen grids and even reduce energy costs for local communities.

In fact, imposing a tax on energy consumption could discourage these efforts and incentivize miners to use less environmentally friendly sources of power overseas. What will happen is a mass exodus of miners out of the U.S., which has the most renewable energy makeup, and shift them overseas where fossil fuels are more predominantly used.

The fact is, about 90% of carbon emissions come from outside the United States. Because tackling "environmental concerns" is a global problem, they would only be contributing to the problem by their own logic.

So what should the government do? Nothing. Let the free market reign. Bitcoin miners are the dung beetles of energy. They go to where the energy is cheapest, and because of the upfront operational expenses of fossil fuel miners and low operational expenses of renewables, it’s easy to see why the majority of mining comes from renewable sources to begin with.

Global competition

The bitcoin mining industry is highly competitive, with countries such as China, Russia and Canada vying for dominance. The proposed tax would undermine the United States' position in this global race, as it would make the country a less attractive destination for mining operations. This could result in a significant loss of investment, talent and technological advancements, ultimately weakening the United States' role in the digital economy.

One lesson learned after China banned bitcoin mining in 2021 was the resilience and adaptability of the bitcoin mining industry. Despite the ban, bitcoin mining operations found new homes in countries with more favorable regulatory environments and access to renewable energy sources. This demonstrated that the Bitcoin network is not geographically confined and can adjust to regulatory changes.

Additionally, the shift to more sustainable energy sources highlighted the potential for bitcoin mining to contribute positively to the global energy transition

Moreover, the tax could also have broader implications for the cryptocurrency industry as a whole. By targeting bitcoin mining, the Biden administration may inadvertently discourage innovation and investment in the industry, which could have far-reaching consequences for the country's technological development and competitiveness.

You can’t ban mining, you can only ban yourself

In summary, the Biden administration's proposed tax on bitcoin mining would have severe negative consequences for the industry and the broader digital economy in the United States, and therefore its own initiatives.

See also: Bitcoin Miners Show Muscle Pushing Back Against a Warrantless EIA Survey

It would impose a significant financial burden on mining companies, discourage sustainable mining practices and undermine the country's competitiveness in the global market. This type of measure is more aligned with oppressive countries like China or what the USSR was like, and it is incredibly disheartening to see from the United States.

Just like the industry rallied to defeat the unconstitutional EIA survey, we should put the same attention here. You can’t ban Bitcoin mining, you can only ban yourself.