US President Joe Biden recently claimed in a tweet that getting rid of “tax loopholes that help wealthy crypto investors” could generate $18 billion for the government. However, the figure left many in the crypto industry perplexed, with some even questioning the existence of a so-called “crypto tax loophole.”
Adam Cochran, managing partner at Cinneamhain Ventures, a digital assets-focused company, tweeted that he would challenge anyone to prove the existence of the supposed loophole. Cochran added that compared to other assets, crypto actually suffered in terms of how gains were taxed on transfer between asset types.
Biden’s budget proposal had already forecasted that eliminating the wash sale loophole for digital assets could bring in $23 billion over the next decade. But where did the $18 billion figure come from? The Wall Street Journal had reported in March that the President proposed a change to how crypto transactions are taxed that would raise $24 billion.
The administration had explained that crypto assets were not subject to the same wash trading rules as stocks and bonds, which had created an opportunity for traders to avoid taxes.
Bloomberg had reported last week that crypto traders were still avoiding billions of dollars in taxes by exploiting wild price swings and employing wash trade tactics. According to a paper cited by the outlet, if traders had been sophisticated enough to use these tactics in 2018, when Bitcoin crashed, at the scale they are now using the wash trading exception, the US Treasury would have lost a projected $16 billion.
However, apart from Biden’s tweet, nowhere else does the crypto tax loophole seem to amount to $18 billion. In fact, a 2022 research note from Joseph Abate at Barclays estimated that the funding gap from unpaid taxes by crypto traders could amount to around $50 billion a year, based on a 2017 IRS calculation.
This is not the first time Biden has faced criticism from the crypto industry. He recently proposed a 30% tax on the cost of electricity used by bitcoin mining, which mining companies pushed back against. At the time of writing, the White House had not commented on Biden’s tweet.
