This month, the Governor of Colorado, Jared Polis, announced that the state will accept tax payments in cryptocurrency. With this new law, Colorado has become the first US state to accept cryptocurrency tax payments. The Governor said that the state will convert the crypto payments into dollar value which will then be deposited in the US Treasury. The tax payments will be processed through an intermediary under a program that will start this summer. The program is expected to expand to include other state businesses like driving licenses and hunting licenses.
Colorado’s Governor Polis has always been ambitious and enthusiastic about cryptocurrency. In one of the crypto conferences, he even proposed that he wants to use blockchain to record the state’s cattle brand system. Polis’ Press Secretary Conor Cahill called this new legislation the “next logical step on the path to digital statehood”. This new legislation puts the state of Colorado at the top of digital innovation and technological advancements. The state also employed a chief blockchain architect who will work with the governor’s office to help process cryptocurrency for tax payments.
Colorado Follows Crypto Mainstreaming Efforts
Colorado is following the footsteps of other US States, which are moving forward to accept and legalize cryptocurrencies. Arizona also proposed to recognize Bitcoin as a legal tender. Besides that, both Arizona and Wyoming proposed to accept tax payments in the form of cryptocurrencies. Despite the fact that these proposals are facing some legal and political hurdles, the Wyoming proposal has moved further than other states to adapt and accommodate cryptocurrencies. The proposal is backed by several big retailers and commercial banks. This includes American CryptoFed, a platform working to issue an algorithmic stablecoin that is to be pegged at the value of the consumer price index. Besides that, the Wyoming effort is also backed by a trade group of retailers called the Merchant Advisory Group. Several retail giants like Walmart, Amazon, and Home Depot are members of this group. For retailers, adopting crypto tax payments means less paperwork burden of sales taxes. If taxes are paid in the form of cryptocurrency, the retailers can set up automatic payments through digital contracts.
These new proposals challenge the authority of the US dollar, which has maintained its supremacy over other digital competitors as the sole form of tax payments. As cryptocurrencies become an official form for paying taxes, they will compete with the Federal Reserve, which regulates the US dollar. This could also challenge the entire central banking system. However, such progressive legislation is the first step to legitimizing cryptocurrencies and bringing them into the mainstream.
Critics of cryptocurrency have long argued that digital currencies have the potential to challenge and even displace the national currencies of any country. They can undermine the authority of central banks and national governments to control and regulate the economy. They also argue that cryptocurrencies can challenge the world reserve currency status of the US dollar. And this could directly impact Americans who benefit from the status of the US dollar.
While both the Arizona and Wyoming proposal make alterations to tax payment methods, the Arizona Bill legalizes Bitcoin. This could violate Article 1, Section 10 of the US Constitution, which restricts states from issuing their own money. Another issue could be the volatility of cryptocurrencies themselves. This volatility may undermine their credibility as legal tender.
This is not the first time states were thinking of allowing cryptocurrency as a form of payment for taxes. In 2018, Ohio unveiled a program to allow businesses to pay a part of their taxes in Bitcoin, but the attempt was soon scrapped by the government, citing that it was not authorized properly. Similarly, the Seminole County Tax Collector’s Office also started accepting a part of the fees in Bitcoin. However, the effort came under federal indictment and was cut short. Since then, the office has no longer accepted payments in cryptocurrencies. This has not stopped states from exploring the possibilities of using cryptocurrencies for payments. For instance, Tennessee and Miami-Dade County are looking into similar possibilities. Similarly, the Mayor of New York City received his paycheck in the form of cryptocurrencies which he promised to do for the first three paychecks. He envisions making New York the “global capital of cryptocurrency”.
Congress Efforts to Regulate Crypto
The Biden administration is planning an executive action that envisages regulating cryptocurrencies as a matter of national security. This new regulation may come under the umbrella of national security efforts as the federal government sets on to build a more comprehensive framework to regulate cryptocurrencies, stablecoins, and NFTs (non-fungible tokens). Since millions of Americans now own and probably use cryptocurrencies, such regulation is much needed. The new legislation will analyze and regulate cryptocurrencies holistically and coherently. This will involve the joint effort of the State Department, Council of Economic Advisers, National Economic Council, White House National Security Council, and Treasury Department. Each of these agencies will be given six months to come up with a proposal on which policies should be introduced. The federal administration maintains that cryptocurrencies have “economic implications for national security”. However, the US government needs to work with other countries to synchronize such regulations as cryptocurrencies do not remain in one country.
Currently, cryptocurrencies are recognized as “property” and are taxed. And different aspects of the cryptocurrency market are regulated by different agencies, including the Securities and Exchange Commission and the Commodity Futures Trading Commission, but there is little coordination between these bodies as their views on cryptocurrency vary. The new legislation aims to bring all these bodies working together to form a comprehensive crypto framework. Greater regulation is not necessarily bad for the crypto market because regulation will provide more protection to crypto investors. Regulation also means that the government is viewing cryptocurrency as a real asset and vehicle of investment. This will ultimately bring greater legitimacy and mainstream acceptance of cryptocurrency. This step could also lend more stability to cryptocurrencies, in general.
