After months of negotiations, the Senate voted yesterday to approve the Biden Administration’s $1 trillion infrastructure plan — which aims to fix aging roads and bridges, fund ambitious broadband initiatives, and much more. Last week, a last-minute change to the crypto-tax provision was tacked onto the bill, rallying the crypto community to amend what they saw as an innovation-killing, overly broad mandate. The resulting saga included competing bipartisan amendments and nail-biting votes. Let’s see how it unfolded.
The controversy began when the crypto-tax provision’s language, which had been circulating for the last year, suddenly changed. The last-minute changes had two major consequences: (1) the definition of “broker” would now reach beyond U.S. crypto exchanges (like Coinbase) and (2) would impose reporting requirements that went beyond what is expected of 1099s from a traditional broker.
In a Twitter thread last week, Coinbase CEO Brian Armstrong acknowledged the importance of tax reporting but explained the provision’s shortcomings: “This means almost anyone in the crypto ecosystem (miners, validators, smart contracts, open source developers) could be treated as a ‘broker’ with massive reporting obligations … This makes no sense ... The infrastructure bill also imposes sweeping and unprecedented reporting requirements that will force exchanges like Coinbase and others to surveil its customer’s transactions in a way that is more intrusive than the rest of traditional finance.”
Crypto users flooded senate offices with calls and emails as crypto industry advocates in D.C. met with lawmakers. A letter protesting the last-minute changes garnered more than 120 signatories ranging from non-profits and trade associations to individual companies. Groups from across the political spectrum, from the Electronic Frontier Foundation to the Americans for Tax Reform, denounced the hasty legislation.
Senators Cynthia Lummis (R-Wyo.), Ron Wyden (D-Ore.), and Pat Toomey (R-Penn.) proposed an amendment to narrow the term “broker” last Wednesday. Many rallied behind the amendment, which exempted protocol developers, validators, and software and hardware wallet makers from the original tax reporting obligations.
Senators Rob Portman (R-Ohio), Mark Warner (D-Va.) and Kyrsten Sinema (D-Ariz.) responded Thursday with a competing amendment that favored proof of work protocols over others (like proof of stake). Though many criticized the amendment for “picking winners and losers,” the White House endorsed it.
On Monday, five of the six senators proposed a last-minute compromise amendment brokered with the Treasury Department. The amendment seemed poised to pass, in a major victory for bipartisan cooperation in our polarized political era.
But the compromise failed to garner the unanimous consent required by procedural rules. A single GOP senator, Alabama’s Richard Shelby, tanked the amendment by demanding it be packaged with a procedural vote on his amendment for $50 billion in additional military spending. In a tweet later that day, Lummis thanked her cosponsors “for fighting with me for the innovators that make our country great. The fight isn’t over. It always takes work to convince skeptics of the merits of new technology.”
Why it matters… Regardless of the bill’s outcome as it moves on to the House of Representatives, the debate has been revelatory. Crypto users emerged as a powerful grassroots political constituency. The crypto industry and a bipartisan group of senators collectively grappled with complicated tech concepts, signalling a growing understanding of the stakes. “Shutting off this growth engine would be the equivalent of stopping e-commerce in 1995 because people were afraid of credit card fraud,” noted entrepreneur Mark Cuban. “Or regulating the creation of websites because some people initially thought they were complicated and didn't understand what they would ever amount to."