Bryan Bashur

House Tax Provision is Bad News for Crypto

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Posted by Bryan Bashur on Monday, September 13th, 2021, 6:33 PM PERMALINK

Capitol Hill continues to impose tax increases on cryptocurrencies.

This time, Chairman Richard Neal (D-Mass.) of the House Ways and Means Committee released text for the tax portion of the budget reconciliation bill, which includes a section that restricts crypto investors from being able to deduct losses on certain transactions.

Section 138153 amends the tax code to specify that foreign currencies, commodities, and digital assets qualify under the Internal Revenue Service’s rules for wash sales. Under current IRS rules, a wash sale occurs when an investor sells “stock or securities” at a loss, and either 30 days before or after the sale, purchases a “substantially identical” stock or security. The IRS prohibits any deduction of losses when a transaction like this occurs.

If this language passes, it will limit crypto investors’ flexibility to deduct losses.

The language drafted by Chairman Neal applies to investors who directly purchase digital assets and investors who purchase derivatives of digital assets (e.g., options and futures contracts).

Additionally, the bill amends statute to capture transactions from a variety of entities. In current statute, the wash rules will apply if an investor were to sell a digital asset and the investor’s spouse subsequently purchased a substantially identical digital asset within the specified timeframe. However, Chairman Neal’s bill expands this so that the wash sale rules also apply to a transaction involving the investor’s dependents; “any individual, corporation, partnership, trust, or estate which controls, or is controlled by” the investor; an IRA, health savings account, or Archer MSA; deferred compensation plan; annuity plan or contract; and a 529 plan.

Democrats are on the warpath when it comes to raising revenue for their monstrosity of a reconciliation bill. This is made clear by their eagerness to reel in revenue by applying wash sale rules to every nook and cranny of an individual’s retirement savings. Democrats do not want individuals to be able to use derivatives, digital assets, or commodities to strengthen their long-term savings, they care more about making sure the government gets its fair share.

On top of restricting deductions on losses, Democrats are also raising the top rate for the capital gains tax from 20 percent to 25 percent. Including the 3.8 percent net investment income tax and the Democrats’ proposed 3 percent surtax, the capital gains tax could be as high as 31.8 percent.

Together these policies will slowly erode individuals’ purchasing power and eliminate any incentive to invest at all.

If enacted, the new application of the IRS’s wash sale rules on digital assets will become effective on January 1, 2022. Unfortunately, without guidance from the IRS, section 138153 of Chairman Neal’s bill could create confusion among investors about what constitutes a “substantially identical” purchase of a digital asset. Additional uncertainty could compel investors to slow trading or stop altogether to avoid any potential punishment from the IRS—creating a chilling effect on transactions within the digital asset industry.

Members of Congress should oppose section 138153 of Chairman Neal’s bill and request its expulsion from the text.

 

 

Photo Credit: "Secure Bitcoins locked with padlock and chain" by QuoteInspector.com is licensed under CC BY-ND 4.0

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Wyden’s Derivatives Tax Harms Retail Investors

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Posted by Bryan Bashur on Thursday, September 2nd, 2021, 5:58 PM PERMALINK

Last month, Senate Finance Chairman Ron Wyden (D-Ore.) introduced legislation that would severely increase the tax burden on the multi-trillion-dollar derivatives market. There is a chance that the looming $3.5 trillion budget reconciliation bill could include this tax hike on derivatives contracts, which would harm everyday investors trading on platforms such as Robinhood, SoFi, FTX, and CME Group.

Individuals who trade derivatives on brokerage apps will be negatively affected by this tax change. This is especially concerning since retail investing in equity options is on the rise. According to data from the Options Clearing Corporation, and reported by Reuters, in January U.S. equity options increased by 70%. Additionally, Robinhood alone has 18 million user accounts. In the second quarter of 2021, Robinhood made $180 million in order flow revenue. Out of that, $111 million was from options trading. That is over 60% of revenue from options.  

It is safe to say that derivatives trading is not just for the rich. Anyone with a smart phone can buy or sell derivatives contracts. This is just another example of how technological advances are allowing retail investors to breach the traditionally closed off world of finance.

Senator Wyden’s legislation, the Modernization of Derivatives Tax Act of 2021 (S. 2621), imposes a tax burden that is two-fold.

First, the bill taxes derivatives transactions at ordinary income rates and applies the tax to unrealized gains for derivative transactions prior to completion of the contract. Thus, taxes will be required to be paid annually even if the derivatives contract has not been settled. This is incredibly alarming. Individuals will be required to pay taxes even when there has been no real gain from the derivative. What incentive do individuals have to invest in derivatives if they will constantly have to pay taxes for holding the asset even when no actual gains are being made? There will be very little incentive to invest at all.

Second, the bill could require investors who execute derivatives with respect to a stock position they hold, to recognize built-in gain on the stock, and potentially pay tax annually on the current market value (mark-to-market) of the stock position in perpetuity. Again, another provision that will certainly stymie private investment.  

The provisions of this bill will only add to investors’ compliance burden.

The derivatives impacted by Wyden’s bill include certain futures contracts, swaps, and options.

Certain derivatives are currently taxed at a top rate of 23.8%. But changing statute to tax these transactions as ordinary income opens the tax burden to increase to upwards of 43.4% if the budget reconciliation bill raises the top rate to 39.6%. Not to mention additional state taxes.

Specifically, passage of Sen. Wyden’s bill could severely hamper any growth for the nascent cryptocurrency derivatives market in the United States. Overburdensome government regulation across the globe has already stymied Binance’s crypto derivatives services. The last thing the U.S. should do is follow suit and implement a tax regime that will raise taxes on individuals who participate in the derivatives markets through free online brokerage accounts.

Democrats falsely claim this measure will close tax loopholes for the super-rich. But make no mistake, this tax-grab will harm all individuals who trade futures, options, and swaps.

The Joint Committee on Taxation estimated that this bill would raise $16.5 billion over 10 years. However, raising $1.65 billion in revenue annually pales in comparison to the subsequent decline of derivatives trading overall that will likely occur in the $15.8 trillion derivatives market because of the increased tax burden. Enactment of Wyden’s bill will chill derivatives trading activity and may lower revenue for the federal government.

Members of Congress should oppose this tax increase and its potential inclusion in the budget reconciliation bill. “Closing loopholes” and cracking down on “tax avoidance” have become a recent clarion call of the Democratic party to raise taxes on middle-class Americans. But all retail investors should be aware that this new tax regime is not only going to affect the wealthy, it will affect you too. 

 

 

Photo Credit: Tech Daily

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Oppose Extension of Durbin Amendment to Credit Cards

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Posted by Bryan Bashur on Tuesday, August 31st, 2021, 1:14 PM PERMALINK

Ask yourself this: should the federal government intervene in negotiations between private parties? If you say no, then you should oppose the Durbin amendment and any extension of it to credit cards. That is exactly what it is, encroachment of the federal government into private business.

The Durbin amendment is not conservative policy.

Urge your senators to oppose any extension of the Durbin Amendment to credit cards.

What is the Durbin Amendment?

  • The Durbin Amendment was signed into law in 2010 as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • The Durbin Amendment is federal intervention at its worst. It sets a federally mandated cap on debit card interchange fees. The fee is a small percentage of a merchant’s sale delivered to customers’ banks for the service of a quick, secure, and reliable payment transaction network and providing the bank accounts that enable payments.
    • These fees are paid to banks and credit unions to ensure that checking accounts are free, the payment infrastructure is secure, and consumers have access to rewards programs.

 

Why is the Durbin amendment bad policy?

  • Ostensibly, the goal of the Durbin Amendment was to reduce costs for merchants and pass those savings onto consumers. However, this has not happened.
    • Consumers have not benefited under the Durbin amendment
    • Only 1% of merchants have lowered prices
    • 22% of merchants increased prices
    • 77% of merchants did not change prices
  • Interchange fee revenue for community banks and credit unions has declined
    • Although the Durbin amendment was supposed to have no effect on banks and credit unions with less than $10 billion in assets, this is simply not the case. In fact, the fee cap is harming small community banks and credit unions. Data from the Federal Reserve shows that community banks and credit unions have lost interchange fee revenue since the implementation of the fee cap. Small community banks have seen interchange fees decline by over 20 percent from 2011 to 2019.
    • This loss of revenue results in tightening of credit and thus making it less likely these banks and credit unions will offer loans. Community banks are a vital lifeline for small business capital in the United States.
    • Credit unions also lose under the Durbin amendment. According to a 2017 report published by the Credit Union National Association, credit unions lost more than $6.1 billion because of burdensome fee caps. Just like community banks, this is an effective method for eliminating all lines of credit and ensuring that small businesses have no way to sustain themselves.
  • Credit card rewards programs will disappear if the Durbin amendment is applied to credit cards
    • Because of the Durbin amendment, rewards programs for debit cards are virtually nonexistent.
    • Rewards cards co-branded with merchants will disappear.
    • The same will certainly happen if it is applied to credit cards, which some lawmakers are discussing
    • This is important because 60% of adults have rewards cards. Additionally, 77% of lower-income individuals have rewards cards.
    • Merchants make more sales with rewards cards. For example, average monthly spending on a rewards account was 43% higher than average spending on a non-rewards account.
    • 82% of households earning less than $20,000 own a rewards card – they are not for rich people. Reverse Robin Hood is not a real phenomenon.
    • Without interchange fee revenue, banks and payment card networks are not able to continue rewards programs
    • The loss of credit card rewards will harm low-income individuals.

 

Who supports the Durbin Amendment?

  • Democrats and merchants
  • Using the Durbin amendment, rent-seeking merchants leveraged the federal government to pad their profits, and Democrats were more than happy to oblige.
  • The Biden administration supports the Durbin Amendment
  • The Biden DOJ and FTC  submitted letters of support for a Federal Reserve rule aimed at clarifying routing provisions in the Durbin Amendment
  • Biden supports federal intervention in private contracts between private parties
    • Therefore, any Republican member in support of extending the Durbin Amendment to credit cards is effectively aligning themselves with the Biden administration.  Even if “only” on the routing provisions of Durbin.

 

 

Photo Credit: Lara Eakins

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Treasury Guidance Aims to End Fossil Fuel Investment by Multilateral Development Banks

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Posted by Bryan Bashur, Mike Palicz on Friday, August 20th, 2021, 4:00 PM PERMALINK

President Biden’s Treasury Department released new guidance this week that further politicizes global investment in energy projects by discouraging capital flow to oil, natural gas and coal projects in developing nations.

The Treasury Department, which manages the United States’ participation in multilateral development banks (MDBs), released guidance establishing “a clear path to end Multilateral Development Banks’ support for fossil fuels,” according to a statement from Treasury Secretary Janet Yellen. The guidance encourages MDBs to oppose direct investment in coal and oil projects while outlining a “narrow support for natural gas.”

Currently, the United States participates in and donates to five MDBs: the World Bank; the Inter-American Development Bank; the European Bank for Reconstruction and Development; the Asian Development Bank; and the African Development Bank. The MDBs offer grants and loans to finance large infrastructure projects for developing countries.

According to the Treasury Department, the guidance was released pursuant to Biden’s executive order on “Tackling the Climate Crisis at Home and Abroad.” The EO directed the Secretary of the Treasury to “develop a strategy for how the voice and vote of the United States can be used in international financial institutions, including the World Bank Group” to pursue “the goals of the Paris Agreement.”

In response to the EO, the guidance notably rejects support for natural gas exploration projects and outlines strict criteria that have to be met in order to finance midstream and downstream natural gas projects. For example, the MDBs must prove that “no economically and technically feasible clean energy alternative” to natural gas. The project must also be aligned with “the goals of the Paris Agreement.”

The guidance issued by Treasury seemingly contradicts assurances given this week by Biden “Climate Czar” Gina McCarthy that the Biden administration is committed to an “all of the above” energy agenda and would not pick winners and losers. 

When considering future appropriations for MDBs, Congress should abstain from picking winners and losers. Taxpayer dollars used to develop energy projects abroad should be granted based solely upon the merits of the individual project. Developing nations that need access to affordable and reliable energy sources should be able to develop projects that are the most feasible and cost-effective regardless of political preferences.

Politicizing energy infrastructure in foreign countries is burdensome government intervention. Instead, the Biden administration should leave private capital to find the best way to bring long-lasting power to individuals around the world.  

Photo Credit: Paul Savala

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Senate Fails to Adopt Compromise Cryptocurrency Amendment

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Posted by Katie McAuliffe, Bryan Bashur on Monday, August 9th, 2021, 5:39 PM PERMALINK

Americans for Tax Reform was disappointed to see the Senate fail to adopt the compromise cryptocurrency amendment (No. 2656) filed by Senator Pat Toomey (R-Pa.) that would have significantly improved the tax reporting requirement provisions in the bipartisan infrastructure bill. 

Grover Norquist, President of Americans for Tax Reform, stated:

Cryptocurrencies should never have been put up as a pay-for in the infrastructure package. It was creative accounting in the part of the White House to try and pay for part of their spending spree. Now an entire industry which should be thriving in America is threatened by IRS agents and requirements to access private information.

It is very concerning that senators could not agree to common sense language on cryptocurrencies. It’s clear legislation, especially on emergent technologies, should go though regular order rather than being hidden in a massive package.

This afternoon, Sen. Toomey asked for unanimous consent to include the amendment in the infrastructure package. This afternoon, Sen. Toomey asked for unanimous consent to include the amendment in the infrastructure package. Unfortunately, objections by other senators prevented the amendment from being adopted. In particular, Senator Bernie Sanders (I-Vt.) blocked the amendment because it would have been paired with Senator Richard Shelby’s (R-Ala.) amendment to increase defense spending. 

The compromise amendment was an agreement between Senators Toomey, Cynthia Lummis (R-Wyo.), Rob Portman (R-Ohio), Mark Warner (D-Va.), and Kyrsten Sinema (D-Arizona) to narrow the definition of a broker for digital assets for reporting tax information to the Internal Revenue Service (IRS). While not perfect, the amendment was a significant improvement from the language in the base text of the package. 

We encourage members of the House of Representatives to fix the language in the base text and look forward to working with them in this endeavor. The last thing the United States government needs to do is regulate the cryptocurrency market to the point where the industry leaves the United States entirely.

Photo Credit: John Williams

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Crypto’s Taxing Predicament

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Posted by Katie McAuliffe, Bryan Bashur on Friday, August 6th, 2021, 2:07 PM PERMALINK

The fight over the cryptocurrency tax reporting provision in the bipartisan infrastructure bill just got a lot more interesting. 

After Senator Rob Portman (R-Ohio) publicly announced he supported a vote on Senator Wyden (D-Ore.), Toomey (R-Pa.), and Lummis’ (R-Wyo.) amendment (No. 2498), he switched gears and filed his own amendment with Senator Warner (D-Va.). Industry leaders and trade associations such as the Blockchain Association, Coinbase, and Coin Center have publicly supported the changes in Wyden-Lummis-Toomey but oppose Portman-Warner. 

As currently drafted, the infrastructure bill would jeopardize the cryptocurrency and blockchain industry’s future in the United States. 

The provision titled “Enhancement of Information Reporting for Brokers and Digital Assets” would likely lead to a host of unintended consequences, not only for the technology’s ability to operate in the United States but also for the privacy rights of all Americans. The last thing the United States government needs to do is regulate the cryptocurrency market to the point where the industry leaves the country entirely. Totalitarian regimes such as the Chinese Communist Party have already kicked out Bitcoin miners much to the benefit of states like Texas who welcome all kinds of business. 

The cryptocurrency language in the bill was hastily thrown together in an act of desperation to pay for its large expenditures. The Congressional Budget Office’s announcement that the bipartisan bill would increase the federal deficit by $256 billion over 10 years underscores the lawmakers’ desire to shore up additional revenue, much to the dismay of the cryptocurrency ecosystem. 

The Joint Committee on Taxation estimated that the language in the bill would raise approximately $28 billion in revenue. ​This is curious since cryptocurrency brokers already report to IRS, so its hard to see where JCT is deriving these new numbers from.​

The Wyden-Lummis-Toomey Amendment addresses a significant concern in the underlying bill. The amendment removes the obligation of network participants, such as miners and software developers, who don’t have—and shouldn't have—access to customer information to report tax information to the Internal Revenue Service. It does so without affecting the reporting obligations placed on brokers and traders of digital assets.

On the other hand, the Portman-Warner Amendment excludes proof-of-work mining and blockchain validators. However, the amendment makes no mention of software developers, node operators, and aggregators thus requiring them to report to the IRS. ​Interestingly, singling out proof-of-work only exempts one technology and does not allow blockchain technology to continue to innovate in the US. These technologies are changing, and the newer proof-of-stake technology is more energy efficient but would not be exempt in the Warner-Portman amendment. It's surprising that the White House and Democrats would put these kinds of limitations on the ability of technologies to become more energy efficient.

The White House has signaled their support for Portman-Warner in an effort to maximize revenue and crack down on digital asset tax avoidance. Unfortunately, this is par for the course for an administration that is obsessed with regulating digital assets all in the name of “investor protection”. 

Tomorrow, the Senate is expected to vote on both of these amendments. What the Senate should not do is be complacent and vote down both of the amendments. ​The Wyden-Lummis-Toomey amendment is best suited to clarify the definition of brokers for crypto purposes without unnecessarily exposing Americans' private information; however, allowing the language in the base text to pass without any changes will undoubtedly require numerous individuals in the cryptocurrency ecosystem to suddenly hand over information to the IRS that they do not possess. 

 

Photo Credit: QuoteInspector.com

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A Moratorium on Earning a Living: Why the Federal Eviction Moratorium Should Not be Extended

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Posted by Bryan Bashur on Monday, August 2nd, 2021, 6:35 PM PERMALINK

Extending the federal eviction moratorium, as Congressional Democrats and President Biden are proposing to do, is a case of unnecessary federal overreach that will harm property owners and continue disincentivizing people to return to work. 

Just last week, House Democrats scrambled to pull together enough votes to pass H.R. 4791, the Protecting Renters from Evictions Act, a bill to extend the moratorium through December. Ultimately, the House did not vote on the bill and recessed for the weekend—allowing the moratorium to expire on July 31. 

Previous decisions by a federal appellate court and the Supreme Court ruled the Centers for Disease Control and Prevention lacked the authority to mandate the moratorium, so any attempt by President Biden to extend the moratorium by executive fiat would be unconstitutional. 

The worst thing Congress could do right now is incentivize Americans to stay at home and not search for a job. 

Under the now-expired moratorium, tenants qualified if they earned less than $99,000 (or jointly $198,000) in 2020, were unable to pay rent because of substantial loss of income, if eviction would put them in a position of homelessness, or if they may have been exposed to COVID. 

Continuing the moratorium is an enormous cost to landlords and carries with it severe penalties if they fail to follow the rule. Landlords with mortgages have a debt service to pay on a timely basis. Without steady rental income, landlords could lose their residences to the banks. And if individual landlords fail to follow the CDC’s rule, they risk criminal penalties ranging from $100,000-$500,000 per event and one year in jail. 

The vilification of landlords in the media and by Democrats has skewed Americans’ view of who actually owns most rental properties. The landlords losing rental income are in fact not large corporations, but individuals who earn less than six figures. According to the U.S. Census Bureau, the vast majority of rental properties in the United States are owned by small individual investors, not large corporations. Out of 20 million rental properties counted by the Census Bureau, 14.3 million, or 71.6% are owned by individual investors. On average, these landlords earn approximately $73,600 per year

The federal government should not be providing more reasons for Americans to stay at home and collect welfare checks right now. The moratorium is not the only help provided to Americans – the federal government currently provides an additional $300 per week federal unemployment insurance—a subsidy that is making Americans complacent in their unemployment. Democrats previously gave people a $600 per week additional payment in the CARES Act passed last year and have provided several stimulus payments totaling $3,000. 

recent study by Ways and Means Republicans found that a family of four with both parents out of work will receive almost $110,000 from the federal government between April 2020 and September 2021. A family of four with one person unemployed would receive $67,824. 

Job opportunities also currently exist – the most recent data from the Bureau of Labor Statistics (BLS) found that there were 9.2 million job openings.

Hardworking taxpayers will continue to have to subsidize people who are more than happy to live off of what Nancy Pelosi and Congressional Democrats are willing to give them. 

Americans that lost their jobs due to the pandemic should and have received assistance from the federal government. However, the government should not be in the business of regulating contracts between tenants and landlords. The Democrat effort to extend this moratorium through the end of the year is unnecessary and will continue their pattern of subsidizing people not to work.

 

Photo Credit: Bruce.Emmerling

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ATR Joins Coalition Letter Opposing Restrictive Price Controls

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Posted by Bryan Bashur on Wednesday, July 28th, 2021, 3:21 PM PERMALINK

Today, ATR joined a coalition of conservative organizations in opposition to the implementation of a federally mandated cap on interest rates. The letter was addressed to the Senate Committee on Banking, Housing, and Urban Affairs to express the negative consequences this unnecessary government regulation will have on consumer loan products.

Senate Democrats are expected to announce the reintroduction of the misguided Veterans and Consumers Fair Credit Act. This bill, if enacted, will make it harder for Americans to access short-term loans. The interest rate cap in the bill would restrict access to lending because lenders will not be able to properly account for risk. This bad policy would also potentially hamper credit card rewards programs.

Congress should work to enact legislation that will enable greater consumer access to credit, not limit consumer credit options. 

The full letter can be found here.  

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