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Homeweb3.0Trump Advocates Eliminating Capital Gains Taxes on Crypto Transactions
Trump Advocates Eliminating Capital Gains Taxes on Crypto TransactionsNov 17, 2024 am 06:58 AM
Crypto Tax Cuts U.S.-Made Tokens Tax Exemption

This proposal directly addresses a common frustration among crypto users: the complexity of capital gains taxes on routine purchases.

Trump Advocates Eliminating Capital Gains Taxes on Crypto Transactions

Former U.S. President Donald Trump has proposed eliminating capital gains taxes on certain cryptocurrencies in a move that could significantly impact the use of digital assets for everyday transactions.

In a recent interview, Trump addressed the issue of crypto capital gains taxes, which have become a point of contention among crypto users. He specifically mentioned the example of using Bitcoin (BTC) to buy coffee and having to pay tax on any increase in its value since purchase.

“They have them paying tax on crypto, and I don’t think that’s right,” Trump said. “Bitcoin is money, and you have to pay capital gains tax if you use it to buy a coffee? I was talking with a friend. He said, ‘It really shouldn’t be taxed,’ and I agree. Maybe we get rid of taxes on crypto and replace it with tariffs.”

This proposal aims to address the complexity and inconvenience faced by crypto users when making routine purchases. Such requirements have discouraged people from using digital currencies for everyday transactions.

Meanwhile, Vice President Kamala Harris has proposed higher long-term capital gains taxes. Under her plan, the top rate would rise to 28% for individuals earning over $1 million annually. This contrasts with President Biden’s proposed budget for 2025, which suggests increasing the tax to 39.6% for top earners.

However, should Trump win the presidency and Republicans control Congress, capital gains tax hikes would likely be ruled out, according to Erica York, senior economist at the Tax Foundation.

Trump’s Crypto Tax Plan: U.S. Tokens Only

Trump's proposal aims to eliminate capital gains taxes on cryptocurrencies that are “made in the USA,” encouraging their use in daily transactions. He emphasized a preference for tokens produced domestically, excluding those made in China, among others.

Trump's strategic move contrasts with Italy's recent decision to impose a 42% tax on Bitcoin capital gains. In the United States, higher earners also face the net investment income tax (NIIT) of 3.8% on capital gains, interest, dividends, and rents when modified adjusted gross income surpasses set thresholds. For single filers, the limit is $200,000, while for married couples, it is $250,000, with no adjustments for inflation. Combining this with long-term capital gains taxes, high earners pay up to 23.8% on investments (see Table 1).

Republicans may attempt to eliminate the NIIT, though experts like Howard Gleckman from the Urban-Brookings Tax Policy Center warn this could significantly worsen the federal budget deficit, which reached $1.8 trillion in fiscal 2024.

Trump's proposal excludes most tokens, including Ethereum (ETH), but includes popular cryptocurrencies such as Bitcoin and XRP. Trump believes that Bitcoin and similar assets should be treated like other forms of money, free from additional taxes. His stance aligns with earlier calls to replace income taxes with higher tariffs.

Trump Advocates for Tariffs Over Income Tax

Trump has emphasized this point on several occasions, suggesting that tariffs could replace federal income taxes. During an interview with Joe Rogan, he confirmed his stance, saying, “Why not?”

However, shifting the revenue source from income taxes to tariffs would require substantial increases in tariffs, which currently contribute only about 2% of federal revenue.

“When we were a smart country, in the 1890s … this is when the country was relatively the richest it ever was. It had all tariffs. It didn’t have an income tax,” Trump said while speaking with a group of barbers in the Bronx. “Now we have income taxes, and we have people that are dying. They’re paying tax, and they don’t have the money to pay the tax.”

Despite the challenges, Trump's campaign adviser, Jason Miller, sees this shift as a long-term objective. He also pointed out that the former president's immediate focus would be to extend provisions from the 2017 Tax Cuts and Jobs Act and implement targeted tax cuts.

Reducing tax burdens has become a cornerstone of Trump's campaign, with promises to eliminate taxes on tips, Social Security benefits, and overtime pay. While discussions of abolishing income taxes for individuals have been frequent, there has been little mention of the fate of corporate income and payroll taxes.

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