On June 25, Congressman Matt Gaetz (R-FL) has introduced a bill allowing people to use Bitcoin to pay their federal income taxes.
The bill seeks to amend the Internal Revenue Code of 1986 to allow the payment of certain Federal income taxes with Bitcoin and require the U.S. Secretary of the Treasury to establish a program to allow and facilitate such payments.
“My groundbreaking legislation will modernize our tax system by allowing federal income tax to be paid with Bitcoin,” Gaetz said in a statement. “By enabling taxpayers to use Bitcoin for federal tax payments, we can promote innovation, increase efficiency, and offer more flexibility to American citizens. This is a bold step toward a future where digital currencies play a vital role in our financial system, ensuring that the U.S. remains at the forefront of technological advancement.”
The idea of paying taxes in digital assets should be fairly uncontroversial. However, Gaetz’s inspiration for the bill appears to be El Salvador is a somewhat questionable source.
In his press release for the bill, the Florida Republican noted that he “had the honor” of attending the second inauguration of the country’s populist President, Nayib Bukele, the self-styled “coolest dictator in the world.”
El Salvador is not an example to follow
Under Bukele’s regime, El Salvador became the first country to make Bitcoin legal tender in 2021. After that, the “crypto-dictator” instituted a number of measures to attempt to coerce the largely unenthusiastic populous to adopt and use Bitcoin, including the Chivo wallet, the deployment of Bitcoin ATMs, and ambitious plans for a Bitcoin city powered by geothermal energy from the country’s volcanoes.
Predictably, this tactic didn’t pay off, with the Salvadoran Chamber of Commerce finding that only 14% of businesses in El Salvador had conducted Bitcoin transactions between September 2021 and July 2022, while only 3% felt that being able to use Bitcoin was valuable.
Despite these unfortunate statistics, Gaetz claimed that in El Salvador, he witnessed how Bitcoin had “helped promote financial stability and job creation in Central America.”
US precedent for paying tax in bitcoin
At the state level, only Colorado has allowed the use of digital assets to pay for taxes. In September 2022 Colorado’s Department of Revenue announced it would henceforth “accept Cryptocurrency as an additional form of payment for all state taxpayers,” including for individual income tax, business income tax, sales and use tax, withholding tax, severance tax and excise fuel tax.
Incidentally, Colorado’s Democrat Governor Jared Polis previously founded the pre-seed investment company Techstars, which provides funding to HealthTech, fintech, Web3, and CleanTech startups. So, he may have a vested interest in seeing a broader uptake of digital assets.
On the federal level, Senator Ted Cruz (R-TX) pushed for a bill requiring shops on Capitol Hill to accept digital assets as payment, which has not been taken up for a vote.
Much legislative energy in the digital asset field has been taken up by efforts to progress the Republican-led Financial Innovation and Technology for the 21st Century Act, also known as FIT21, which recently passed a full House vote.
A version of the bill must still pass a senate vote, after which it would go to the President for final approval—all of which is unlikely to happen this year—but if it came into force, it would significantly boost the oversight role of the Commodity Futures Trading Commission (CFTC) while reducing that of the Securities and Exchange Commission (SEC).
The other major concern of Congress is stablecoin legislation, with bills in both the Senate and House of Representatives continuing to progress slowly through the exhaustive U.S. legislative obstacle course.
On April 17, Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) released a draft of their Lummis-Gillibrand Payment Stablecoin Act of 2024, which would prohibit so-called ‘algorithmic stablecoins’ like UST, the Terraform Labs token that collapsed when it lost its peg to the dollar.
Meanwhile, Rep. Patrick McHenry’s (R-NC) ‘Clarity for Payment Stablecoins Act of 2023‘ has bipartisan support in the House and, if enacted, would create a regulatory framework for the issuance and oversight of payment stablecoins.
However, in the run-up to the November elections, it seems increasingly unlikely that any significant legislation will pass in this Congress.
Watch: Is it the time to use blockchain tech?
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