The Biden Administration is growing increasingly worried about the popularity of bitcoin — fearing that cryptos could become an easy way to avoid taxes.
Indeed, the Biden administration has put tax evasion at the top of its agenda. The “American Families Plan” plan will reportedly include an additional $80 billion for IRS audits. In addition, Biden is introducing regulations requiring individuals and businesses to disclose crypto transactions worth $10,000 or more.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury writes, citing a paper that called cryptocurrencies “super tax-havens.”
But, here’s what the Biden team doesn’t seem entirely understand: criminal transactions are still traceable. Granted, the government might have to work a little harder than, say, if the money were moved via an American Express card or transferred via an off-shore bank, but crimes are still more traceable than via cash.
A Currency For ‘Kidnappers and Extortionists’?
Berkshire Hathaway’s Charlie Munger recently called Bitcoin “disgusting and contrary to the interests of civilization,” adding that he doesn’t welcome “a currency that’s so useful to kidnappers and extortionists.”
Is crypto really such a boon to money laundering, illegal drug trade, or ransomware terrorism?
Numerous high-profile criminal cases show that Bitcoin transactions can be traced. This has led to multiple arrests in the past few years.
Authorities even began contracting specialized firms to help them track crypto transactions of suspected criminals. Who knows, the IRS might do the same in the future.
As people involved in illegal activities try to cover their crypto trails, firms are popping up that offer “Bitcoin laundering” services. These include Bitcoin mixing, which aims to dissociate Bitcoins from their source, and Bitcoin exchanges, which aim to anonymously convert Bitcoin into cash.
However, it is questionable whether these “services” have any advantages compared to traditional money laundering. Rather, crypto’s “unparalleled transparency” likely makes crypto laundering a rather bad idea.
That’s because while all transactions are public, account holders can take measures to remain private and dissociate themselves from the transactions. But, it’s not that easy.
Bitcoin users who want to protect their privacy need to be careful with using online services, revealing their IP addresses, or sharing their Bitcoin wallet information and Bitcoin addresses.
The Blockchain Is Public
The fact which evades the report is that crypto transactions are not secret or anonymous. They are by definition public. That’s how blockchain technology works.
Bitcoin is a good example. All transactions in Bitcoin, all wallets and balances, from the moment it was created to the present, are public information.
As one expert put it, “transactions involving cryptocurrencies like bitcoin are recorded on a permanent, public, and immutable ledger” which offers “unparalleled transparency.
That’s how reporters instantly found out that the largest Dogecoin “whale” bought 420.69 Dogecoins. All transactions are public.
While cryptocurrencies like Monero (XMR) have some features which facilitate anonymity, these coins make up a small minority of the total crypto market cap. And it’s still questionable whether these cryptocurrencies are the best system
The Real Culprit: Not Crypto
Instead of trying to paint cryptocurrencies as the eternal boogyman, the Biden administration should focus on the real culprit behind tax evasion: high taxes.
The effect of high tax rates on tax evasion is very well documented. As tax rates increase above a certain level, tax evasion rates increase dramatically.
Rather than being the “ultimate tax haven” cryptocurrencies might just be a new iteration of an old phenomenon; “creative tax accounting” for Zoomers.
Tax evasion should be punished, that goes without saying. But blaming crypto won’t do anything to address the real cause.
And as long as people are forced to pay exorbitant tax rates, people will use whatever means necessary to avoid paying taxes. The administration should wake up to that fact.