The Mises View: “Taxing Cryptocurrency” | Jeff Deist


Tax season is over, but it’s interesting
to note that the IRS recently released some guidance talking about how it plans to treat the
taxation of transactions that take place using
Bitcoin or other crypto currencies and electronic or digital medium of exchange. Now, in this guidance the IRS is basically announced that it intends to
treats Bitcoin as property not as currency, and heads they’ll be
capital gains type treatment accorded to Bitcoin transactions. So, absent some sort intervention by
Congress, this is sort of the rule or the tax law as it pertains to crypto currencies at the moment. Now this
raises a whole host of interesting economics questions in the areas a barter and exchange, and currency versus other forms a
property. Now, in your typical barter transactions of course, no money is exchanged. Take the case of
the farmer who produces a bushel of wheat and takes it
down the road to another farmer who has mules for sale and exchanges the bushel of
wheat for a mule because the farmer who grows the what would rather have a mule than the additional bushel of wheat for
his own personal consumption. This is a pure barter transaction, it takes place without any money, yet
both parties in the exchange feel like they’re better off afterwards, or we can
assume sort of a priori that they wouldn’t have entered into the transaction. Now, this is an awfully tough way to run an economy
because of the concept of a lack of coincidence of wants. In other words, if the only farmer
nearby doesn’t have mules but has nails or gunpowder and that’s
something you don’t particularly need, you have a lot of costs involved in
trying to find someone who’s got something to exchange with you. So, of course money arose from a pure market need and over the ages it developed into the
kinds of money arose like silver or gold, but nonetheless money solves this
problem, lack of coincidence of wants, and gives us a
way to specialize and conduct business. Now, when when it comes to the tax angle or the IRS perspective, it’s interesting to note that the treatment of a barter
transaction, or one farmer gives a bushel of wheat for the other farmers mule, is treated the same as though this transaction is being conducted in cash. In
other words, if the wheat growing farmer takes his wheat
to exchange and gets US dollars in cash for that wheat, he pays income tax on that cash, then he takes it and buys the mule with
it. Now, the cash used to buy the mule may or may not be deductible as a business
expense, but nonetheless all this is firmly a taxable transaction from the perspective of the IRS. With barter,
it’s no different there are specific rules in the tax code,
in the tax regulations, that apply to barter transactions. And so this idea that when the farmer trades wheat for a mule, he’s better off;
the IRS says, “Well, that’s an accession to wealth and hence you have
to pay an income tax on that.” And this comes from a very
famous tax case the 1950s known as the Glenshaw Glass Case. So, the point here is that we cannot
depend on technology somehow for different forms of trade to get
us out of taxes because conceptually the idea of what constitutes taxable income in our
society, and frankly in most societies with most tax authorities around the world,
is any sort increasing your personal wealth. So, when we go back to the Bitcoin or
crypto currency issues, this new IRS guidance creates an
incredible burden in terms of compliance costs. Bitcoin or cryptic currencies will now be treated in effect, like a capital
goods. So, this means just like with stock, you have to track
your tax basis. So, if you or I go out and buy stock in
Apple, and we all wish we’d bought more. Let’s say we bought a certain block of stock
in 2000, another block in 2005, another block last year in 2013, those all had different prices, we track
our price, and then we sell the stock, we pay capital gains tax or have a
capital loss based on the price difference between what we paid for it and what we later sell it for. Well, now the
IRS is basically saying that Bitcoin and other digital currencies
are going to be treated in much the same manner. So, that means
that every time you acquire one of these, you are going to have to track your tax base, and every time you
purchase something in effect, that could be in the IRS perspective, a
taxable event. And if that comes out using crypto
currencies for everyday transactions, buying gasoline, buying coffee, buying
groceries, you don’t exchange Apple stock for groceries but if Bitcoin is treated the same way
for example, it’s goning to create a tremendous compliance burden. So, in conclusion I would just say that
as Austrians and as libertarians, we tend to encourage and champion any
attempts to wrest control of money away from
governments, from politicians, from central bankers. We want to see money as a market commodity and a market
phenomenon, that has nothing to do with the state. But, this recent IRS guidance is just an
example, it’s really just the tip of the iceberg of how those same governments, and central
bankers, and political class see things like bitcoin. So, we all
need understand that technology alone can’t save us from the state and it’s taxing, the only thing that can
save us is the actual elimination of those taxing authorities, and better ideas among the population
about the proper role of government.

12 thoughts on “The Mises View: “Taxing Cryptocurrency” | Jeff Deist”

  1. Excellent video, thank you for your post!
    PS: It's only me, or his pronounce of the word "wheat" sounds exactly like the word "weed"?

  2. It is essentially impossible to track bitcoin transactions back to the individual, as anonymity is one of the shining virtues of bitcoin. So it would be very costly for the IRS to actually enforce this addition to the tax code.

  3. This is totally ridiculous. Is this what they expect?

    1. Starbucks coffee – 2 mBTC
    2. nails – 1 mBTC
    etc.

    Not to mention the fluctuating value of the bitcoin which must be tethered to the dollar at each transaction. Do they really expect people to not only keep a list of every transaction, but remember the value of BTC at the time so that they can translate that cost into a taxable dollar amount? They could get businesses to do it if they were large enough, but at this time its mostly just random people.

    There would be no way to enforce this anyway. Look at how many people pirate dvd's through bit torrent yet they don't stop each person. Enforcing this law would be more expensive than the transactions themselves.

  4. I agree with everything stated in this video, however, bitcoin is programmable money, and we are developing ways to fully anonymize transactions making it practically impossible for any government to control it. What happens to taxation laws (or a potential prohibition of bitcoin for that extent) if the regulators have now way of controlling or tracing transactions while being extremely easy for us to make them anonymous? I would argue that the only reason why they haven't tried to grip their fingers around barter and tax it is because it would be so difficult to comply and enact that it becomes an impossible situation for the regulators. The same thing is going to happen with bitcoin

  5. When inflation becomes rampant bitcoin will be more stable and will be used regardless.
    So now it's up to Janet Jellen to save the statist's !
    🙂

  6. No one outside of the USA cares about the "IRS", or "Congress". No one cares about the opinion of Bitcoin from whatever talking head from the state over there is offering to opine.

    There are billions of people in the world who are not under the jurisdiction of "Congress" or the terror of the "IRS". The "tax code" mentioned here does not apply to the vast majority of people on Earth. This is a fact.

    None of the talk of this nature swirling around this subject matters. Only software matters. If you are not writing or running software, nothing that you say about Bitcoin matters.

    Finally, what is "our society"? The vast majority of the people on Earth are not a part of the society that buys stock in Apple, is under the jurisdiction of the USA or its IRS, so what or who exactly is "our society"? There is no IRS burden on most of the people on Earth. There is no "we" who all have to understand the burdens American's live under; they do not apply to us, they apply to YOU its YOUR burden and YOUR problem, not OUR problem.

    You have our sympathy you unlucky people!

  7. Good information, but a little misleading suggesting that technology cannot solve regulatory red tape – https://darkwallet.unsystem.net

  8. What Deist doesn't consider is that income tax compliance in the US is currently very high, but not 100%. In fact, historically, as tax rates go up, tax revenue plummets. The fact is that it is very difficult for the IRS to in fact compel people to pay their taxes. They do not have the man power nor resources to force compliance. 

    The high rate of tax compliance this country currently has is not just because of a perception that paying your taxes is your duty, but more probably because of the fact that employers are required to take out withholding tax. That in combination with going after select targets to make them an example to the other tax slaves who may be thinking of not paying. However, it is a known fact that if you fail to pay taxes, your actual chances of ever being caught is exceedingly low. With employment plummeting and casual (survival) entrepreneurism on the rise, the ability and motivation to avoid taxes goes way up. 

    Bitcoin would be even more difficult to tax than cash. If you are self employed and you want to avoid taxes then you have to only take cash and avoid taking credit cards and avoid using banks as they provide records that can be used by the IRS to trigger an audit. With bitcoin you have the convenience of credit cards as well as the anonymity (pseudonymity) of cash. You never have to ever use a bank and the amount of effort it would take to connect any bitcoin transactions back to you, would exceed the work it currently takes to do a standard audit. 

    In one way I agree with Deist, technology alone cannot save us from the state. Only a willingness to use such technology to resist the state, will we save ourselves from the state.

  9. You cannot depend on technology … but you can depend on anonymity.

    Another method is to use the Bitcoins as collateral for a loan to buy an income producing asset. Loans themselves are not taxable. Once the income producing asset pays off the loan for you, you still hold the bitcoins.

    Declaring bitcoins to be an asset was an immense mistake by the IRS. There are all sorts of means for lawful tax and reporting avoidance now.

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