The U.S. Treasury Department called for a tax on cryptocurrency transfers between businesses on Thursday, looking to increase revenues to fund a proposed $1.6 trillion plan aimed at expanding education and social insurance. This idea is part of broader efforts to finance a support plan for American families, including tax increases on the wealthy, and stipulates that "companies receiving cryptocurrency assets with a fair market value exceeding $10,000" must report to the Internal Revenue Service responsible for taxation. The Treasury explained that accounts or payment services using cryptocurrencies like Bitcoin are also included under the new reporting requirements.
In a presentation of the proposal, the department stated, "Although they currently constitute a relatively small part of business income, cryptocurrency transactions are likely to become more significant over the next decade, especially with a widespread reporting system for financial accounts."
**Crashes and Recoveries Within the Crypto Sphere**
Amid this news, Bitcoin reduced its gains, trading above $40,000 after briefly turning red. Earlier in the session, Bitcoin surged 9% above $42,000, according to Coin Metrics. Some Bitcoin alternatives also trimmed their gains, with Ethereum last trading up 3% after previously jumping 13%. Dogecoin rose by 7% after climbing 17% to 42 cents following a tweet from Tesla CEO Elon Musk. Musk mentioned Dogecoin on Twitter again, adding another chapter to the volatile history of this cryptocurrency that started as a joke mocking Bitcoin. On Thursday, Musk tweeted: "What’s the price of Doge in the window?" He later responded to another commenter: "I have not and will not sell any Doge."
This follows a day of significant losses for cryptocurrencies, which saw a sharp decline in Bitcoin, Ether, and Dogecoin before recouping a large portion of those losses later. On Wednesday, Bitcoin dropped by 30%, hitting nearly $30,000 at one point in the session before trimming some losses. The entire cryptocurrency market lost hundreds of billions of dollars in market value in a single day.
**U.S. Tax Plans**
Implementing taxes on digital assets is part of a larger plan by the Treasury to increase the number of employees and enforcement authorities at the IRS, with the goal of closing the gap between what the government is owed and what it actually receives. The department estimated that the gap was about $600 billion in 2019 and is expected to rise to nearly $7 trillion over the next decade unless addressed.
The American Families Plan is one of two major proposals from President Joe Biden, the other being the American Jobs Plan aimed at renewing the nation's infrastructure at a cost of approximately $2 trillion. With Democrats holding a slim majority in Congress, Biden is under pressure to find ways to fund both plans and secure the necessary votes from Republicans for their approval.
The popularity and value of Bitcoin, Dogecoin, Ethereum, and other cryptocurrencies rose over the past year due to the economic disruptions caused by the COVID-19 pandemic and the promotion of these currencies by some companies. The Federal Reserve is studying the creation of its own digital currency and announced on Thursday that it would release a study this summer discussing the impact of such a currency on payment systems and the feasibility of introducing a U.S.-backed digital currency. Federal Reserve Chair Jerome Powell stated, "We believe it is important that any central bank digital currency could serve as a complement and not a substitute for cash and current private sector digital dollar variations, such as deposits at commercial banks."
