The idea of a crypto transaction tax has sparked intense backlash, with David Sacks, the White House Crypto and AI Czar, strongly opposing the proposal.
The venture capitalist warned that even a small tax on every crypto transaction could set a dangerous precedent, leading to broader financial burdens in the future.
During a recent appearance on the All In Podcast, host Jason Calacanis suggested implementing a 0.01% tax on all crypto transactions to help fund the U.S. Strategic Bitcoin Reserve. The tax would apply to transfers, purchases, and sales, with the amount deducted in the asset being transacted.
Sacks immediately dismissed the idea.
“That’s always how taxes start. They are described as being very modest. You know, when the income tax started, it only applied to like a thousand Americans, and the legislators swore up and down that it would never be applied to middle-class people.”
He further argued that even a seemingly insignificant tax could quickly evolve into a more burdensome financial policy, ultimately affecting investors, businesses, and mainstream adoption.
Crypto Investors Push Back Against Proposed Tax
The crypto community has also voiced strong opposition, calling the proposal an unnecessary burden on investors. Critics argue that taxing wallet-to-wallet transfers, even those between a person’s accounts, would stifle innovation and add an extra layer of complexity to an industry already grappling with regulatory uncertainty.
Despite the heated debate, the recent White House Crypto Summit made no mention of specific tax policies. The Biden administration has yet to introduce any concrete legislative proposals on crypto taxation, leaving the industry uncertain about potential future policies.
Meanwhile, former President Donald Trump has put forward a vastly different vision for the U.S. tax system. His administration is exploring a plan to abolish federal income tax and replace it with tariffs on imported goods.
Trump has pointed to the 19th century, when tariffs were the primary source of U.S. federal revenue, as evidence that such a system could fuel economic prosperity.
Commerce Secretary Howard Lutnick has reiterated the plan, suggesting that the IRS could be replaced by an ‘External Revenue Service’, shifting the tax burden away from individuals and onto foreign imports.
What Would This Mean for Crypto Investors?
According to research from accounting automation firm Dancing Numbers, Trump’s tax plan could lead to significant savings for American taxpayers.
- Eliminating federal income taxes could save the average American $134,809 over their lifetime.
- If state income taxes were also repealed, lifetime savings could reach $325,561 per person.
For crypto investors, removing income tax liabilities could potentially boost trading activity, reduce capital gains burdens, and encourage more institutional participation in the market.
The Bigger Picture
With two starkly different approaches to taxation being discussed, the future of crypto regulation remains uncertain.
On one side, the Biden administration has not ruled out the possibility of new crypto transaction taxes, a move that could increase regulatory pressure on the industry. On the other, Trump’s proposal to eliminate income tax could reshape the economic landscape, making the U.S. a more favorable destination for crypto entrepreneurs and investors.
For now, the crypto industry is keeping a close watch on regulatory developments, knowing that the next tax policies could significantly impact innovation, investment, and adoption.
