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Why Crypto Shouldn’t Worry Too Much About the $1T Infrastructure Bill
September 27. Put that date in your diary, because this is when the controversial Infrastructure Bill is likely to be passed by the House of Representatives.
In its current form, the bill establishes new tax-reporting requirements for non-custodial blockchain and cryptocurrency technology providers, essentially widening the definition of ‘broker’ to incorporate everything from developers and miners to decentralized exchanges.
Understandably, the section of the bill legislating for this has left the cryptocurrency industry feeling more than a little perturbed. When we first reported on the bill earlier in August, we noted that a few crypto-sympathetic senators were pushing a number of amendments that would limit the definition of ‘broker’ to exclude miners, validators and wallets. However, since this initial article, the Senate has passed the original version of the bill (doing so on August 11), without any amendments to the section concerning digital assets.
While this is deeply concerning for the industry, there’s still a good chance that all is not lost. Not only have senators and the US Treasury been telling journalists that it won’t target non-brokers (even if the bill isn’t amended), lobbyists working within the industry remain confident that they can work with sympathetic legislators to make favorable changes before September 27.
The Infrastructure Bill and Crypto: The Current State of Play
For those who aren’t all that familiar with the Infrastructure Bill (formally known as the Infrastructure Investment and Jobs Act), it is a $1 trillion legislative package intended to give the American economy a boost via investment in infrastructure development. However, because many legislators (particularly Republicans) are wary of increasing income and other taxes to pay for it, it has shoehorned in provisions for tightening up cryptocurrency-related tax reporting.
Hence, the mess the cryptocurrency industry currently finds itself in. As of writing, this is what how the bill currently defines a broker, as detailed in Section 80603 (titled “Information Reporting for Brokers and Digital Assets”):
“Any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Without regurgitating too much of our previous article on the subject, a couple of amendments proposed certain limitations on the above definition of a broker. The latest such amendment, which was jointly proposed by Senators Toomey, Lummis, Warner, Portman and Sinemam, explicitly excluded validators (e.g. miners, nodes), wallet providers and developers.
Source: Twitter/Jerry Brito
Unfortunately, this amendment was ultimately rejected, in part because Alabaman Senator Richard Shelby proposed an amendment that would have introduced a $50 billion Department of Defense infrastructure provision. Because other senators wished to block a vote on this amendment, they therefore withdrew from voting on the Toomey-Lummis-Warner-Portman-
“Because there is a difference of opinion on whether or not the Senator from Alabama should get a vote on his amendment –because that is not agreed to — the body is refusing to take up an amendment that has broad bipartisan support that we all know fixes something that badly needs to be fixed.”
In other words, the cryptocurrency industry is basically collateral damage to the technicalities and quirks of American politics. And on two counts: because Congress wants cryptocurrency taxation (rather than increasing other taxes) to count towards $1 trillion in spending, and because legislators wanted to stop a colleague from proposing an unpopular amendment.
Source: Twitter
What Happens Next?
The current situation is worrying. But it’s arguable that the cryptocurrency industry shouldn’t be too alarmed, at least not yet.
Firstly, the US Treasury has reportedly offered assurances that it will adopt a fairly narrow definition of broker, even if the final bill doesn’t include any limitations or exclusions.
“The US Treasury Department will not target non-brokers, such as miners, hardware developers and others, even if the provision isn’t amended,” CNBC reported one Treasury official as saying.
Likewise, Senator Rob Portman — who supported the failed compromise amendment — has given a speech in which he argues that, even without an amendment, the definition of broker as it currently stands is already sufficiently clear.
“The concern has been expressed that some in the cryptocurrency industry who are not brokers would be caught up in this definition. The Treasury Department, the nonpartisan Congressional Joint Committee on Taxation, and others believe that the current language is clear enough that the reporting requirements only cover brokers,” he said on August 9.
Portman also noted that, for tax purposes, the use of “effectuating transfers of digital assets” refers specifically to “a sale on behalf of someone else.” This would exclude miners and other validators, as well as wallet providers and developers. Basically, if you’re not a middleman who sells cryptocurrencies on behalf of a client, you’re fine.
Portman’s interpretation, however, may not exempt (at least some) decentralized exchanges. This is something which the Treasury official speaking with CNBC also noted, although they went on to explain that it “plans to take time to undergo research to understand who might be asked to comply and verify whether they’d be capable of doing so.”
Of course, assurances from Senators and Treasury officials aren’t really good enough for the cryptocurrency industry, which is populated by individuals who are naturally skeptical of governments. As Coin Center’s Jerry Brito protested, the “the point of the bill is to expand the definition of ‘broker’ such that [the] Treasury could interpret it to cover non-middlemen who would not qualify as brokers today.”
Source: Twitter
In response to Brito, it could be said — as he pointed out in his tweet of August 6 — that the point of the bill is actually to allow projected revenues from heightened cryptocurrency tax reporting to pay for increased spending, rather than to “expand the definition of ‘broker’.” Still, we can at least concur that the bill in its current form remains a danger to crypto, in that it could invite officials to adopt a loose definition of ‘broker.’
Despite this danger, Brito and the wider cryptocurrency industry remain confident that they can introduce a new amendment in the House of Representatives. This will be helped by the fact that a number of representatives are sympathetic to cryptocurrency, and understand the need for clarification.
Source: Twitter
At the moment, the House of Representatives is set to vote on the Infrastructure Bill by September 27, after a $3.5 billion budget resolution was passed on August 24. It’s almost certain to pass, but given that a growing number of congressmen and women understand the need for amendment, there’s a very good chance it won’t pass in its current form. And even if it does, it’s not a foregone conclusion that it won’t jeopardize the American cryptocurrency sector.
