On Thursday, the Biden administration released the US president’s 182-page budget proposal for fiscal year 2024, which aims to “grow the economy from the bottom up and toward the middle.” The budget includes an $835 billion increase in military spending, but the administration says it will reduce the deficit by $3 trillion over the next decade. Furthermore, the budget proposes to “close a loophole that benefits wealthy crypto investors” and plans to gradually introduce a 30% tax on electricity used in cryptocurrency mining.
Biden’s budget aims to reduce the deficit by raising taxes
Unlike many previous US presidents who have promised no new taxes, President Joe Biden has no problem imposing more taxes on American individuals and businesses. However, the Biden administration claims that the highest taxes are targeted at the country’s wealthy, and the latest budget proposal aims to add a 25% minimum tax on the wealthiest Americans.
The White House budget proposal it is subject to review, modification and approval and is not yet finalized or set in stone. Biden, of course, will be running for re-election next year and faces the possibility of losing to another candidate. President Biden’s budget plan calls for increasing the corporate tax rate from 21% to 28%, as well as increasing taxes on fossil fuel companies involved in oil and gas.
The administration contends that the current tax code gives wealthy Americans “special treatment” that allows many of them to pay lower rates through tax planning and “loop loops,” according to the administration’s budget fact sheet. Biden. The plan also targets “wealthy crypto investors” and real estate investors. In the “Close Tax Loopholes” section of Biden’s budget, the plan references Section 1031 of the Internal Revenue Code.
Section 1031 of the Internal Revenue Code, sometimes referred to as “exchange of similar property,” allows individuals or businesses to delay payment of tax on certain types of property that they exchange for similar property. This tax provision was first introduced in 1921.
The removal of the like-kind swap provision or the 1031 swap rule could have serious consequences for crypto investors. This could result in higher tax bills, administrative burdens and could discourage investment in the market. President Biden’s budget proposal could result in a substantial increase in tax bills for active cryptocurrency traders who frequently engage in trading.
2017 changes to the 1031 exchange rule; Biden’s Plan Aims to Tax Crypto Miners
The 1031 change rule underwent significant changes in 2017 with the passage of the Tax Cuts and Jobs Act. The rule was restricted to real property, and a transition rule was introduced to grant a grace period to taxpayers who had already made similar exchanges of personal property. Additionally, the 2017 changes established a threshold for taxable earnings.
President Biden’s budget proposal argues that the “ultra-rich” exploit these tax incentives provided by the provision to “accumulate fortunes tax-free.” However, some argue that it’s not just billionaire guys who benefit from the like-guy swap provision. It also offers low-income and middle-class investors the ability to defer taxes, which can improve their liquidity and diversify their investments.
President Biden’s budget plan also targets taxed cryptocurrency miners by proposing to impose a special tax on crypto mining operations that consume electricity. The tax would gradually increase up to 30%. Under the proposal, “companies engaged in the mining of digital assets should report the amount and type of electricity used, as well as the value of that electricity if purchased externally.”
The proposal also establishes that “companies that lease computing capacity would be required to report the value of the electricity used by the leasing company attributable to the leased capacity, which would serve as the tax base.” Beginning in the fiscal year following December 31, 2023, the proposal would implement a tiered excise tax at rates of 10%, 20%, and 30% over a three-year period.
What do you think about Biden’s budget plan that increases taxes to reduce the burden of the deficit? Let us know your thoughts in the comments section below.
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