The cryptocurrency sector is a multitrillion-dollar industry. But rather than help Americans cash in on it, President Joe Biden apparently wants to discourage its growth, first through regulation and now through punitive taxation. The White House just unveiled a proposal for a 30% tax on bitcoin mining, which is the complicated digital process by which new bitcoins are “mined” or created.
Why? Because, relatively speaking, this process uses a lot of electricity. According to the White House, the federal government needs to heavily tax this economic activity so that miners have “to pay for the full cost they impose on others,” namely the environmental pollution such as carbon emissions that are a byproduct of robust energy consumption.
That all sounds nice in theory, but in practice this idea is completely untenable and unworkable.
For one thing, the Biden administration projects that this would raise $3.5 billion in tax revenue over a decade. Yet that projection seems deeply suspect.
You see, unlike most economic activity, bitcoin mining can be done from literally anywhere in the world. Why does this matter? Well, I can’t serve you dinner or sell you cocktails from halfway across the globe. So, if that activity is taxed, it might be discouraged, but it’ll still occur at some level. So some amount of revenue will be raised.
However, with something that can literally be done from anywhere on Earth, the most likely outcome is that mining relocates and almost all of it happens in other countries without a 30% tax. That means the projected revenue will never materialize.
We’d lose out on having economic activity in an innovative industry occur here and get very little in exchange. What’s more, while this might successfully reduce U.S. carbon emissions, it would probably increase global carbon emissions — completely defeating the point from an environmentalist perspective.
Why? Well, many of the other countries where the mining would relocate to have fewer environmental standards and dirtier energy grids than we do. So the net impact of this tax could be a big increase in carbon emissions: literally the opposite of what’s intended.
This isn’t speculation. We’ve already seen exactly how this process plays out. Peer-reviewed studies show that when China banned crypto mining, it ultimately resulted not in less crypto mining occurring but in it simply shifting to other countries such as Kazakhstan, which has lower environmental standards and still relies on coal for electricity generation. In part because of China’s policy, the emissions associated with bitcoin mining actually “increased by 17% in August 2021 compared to the 2020 average.”
What’s more, pushing bitcoin mining out of the U.S. would actually discourage our development of renewable energy sources.
“The beauty of bitcoin mining is that it naturally incentivizes renewable energy generation,” one bitcoin miner, Fred Thiel, explained . “In many cases, green energy sources — such as solar and wind farms — are only feasible if there is consistent demand for that energy when it is produced.”
Bitcoin mining helps provide that demand when renewables would otherwise produce more energy than is needed at certain times (when the wind is blowing strongly or the sun is shining particularly brightly). As a result, it helps make renewable energy expansion more economically viable.
So, to recap, Biden’s proposed tax would raise little if any revenue, push economic activity outside the U.S., discourage the development of renewable energy, and almost certainly increase global carbon emissions. Other than that, great work, Mr. President.