Can a US riches tax push millionaires to Bitcoin adoption?

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There are ways in which a tax upon the ultra-wealthy can nudge them toward crypto, but concealing assets is not one of them.

Levying a progressive taxation on the ultra-wealthy continues to be a talking point long popular with many United States Democrats, yet such a policy would have been unimaginable under a Republican administration and a split Congress.

As new bridges between conventional capital and the electronic asset space emerge almost daily, high-net-worth individuals can move significance to crypto with much more ease than previously. Would a prospective wealth taxation, should it be codified in legislation, change their willingness to do so?

Warren’s plan
The framers contend that the burden is only going to fall on the most affluent 100,000 households in the nation, or the top 0.05percent of wealth distribution.

The lawmakers argue that the initiative can earn at least $3 trillion in national revenue over 10 years — a pool of funds which could be instructed to support underfunded areas such as education, childcare and infrastructure.

The proposed legislation would have to clean the U.S. Senate before it becomes law. Even though Democrats and Republicans are now tied 50-50 in the chamber, with the Democratic Vice President Kamala Harris carrying a tie-breaking vote, many invoices still consider at least 60 votes for approval. As Bloomberg mentioned , Democrats are hoping to append some elements of the tax to the budget bill that will be reconciled later in the year.

Criticisms abound
It doesn’t come as surprising the initiative received instant scolding from the political right and centre, along with big business circles. In the weeks following the proposition went public, the Wall Street Journal conducted several op-eds asserting that the wealth tax could bring more damage than good.

One argued that a wealth tax for American millionaires and billionaires would affect the possession landscape at the U.S. stock market: As big U.S. investors are forced to sell their liquid assets at a discount, their counterparts from tax authorities would be happy to purchase. The writer of some other contended that the outflow of funds from the stock market resulting from taxation of this ultra-wealthy would diminish the worth of everybody’s savings.

Billionaire Leon Cooperman told CNBC that while he believes that wealthy people should pay more taxes, Warren’s setup of this policy”has no virtue.” He added:”When the wealth tax moves, go out and get yourself some gold since people are going to rush to find ways of concealing their wealth.”

Wait, but can that gold be electronic?

Not a place to conceal
Allowed, Cooperman’s quip about using gold to conceal one’s net value is metaphorical, a reference to these kinds of assets that could be less visible to the authorities attention compared with people sitting in bank and brokerage accounts. As for the true gold, the IRS treats precious metals as collectibles subject to long-term capital gains taxation. Cryptocurrencies surely do not belong in either of these categories, as they are collectibles (unless they are nonfungible tokens) nor visible.

If the objective is literally to hide the wealth, resorting to a store of value that is automatically monitored in an openminded, immutable ledger does not seem like a fantastic idea. Maria Stankevich, chief business development officer at cryptocurrency market Exmo UK, commented to Cointelegraph:”Today enormous BTC adoption is tightly connected not to the shadow cash, but quite to the opposite — to its status of the transparent financial advantage.” Tim Byun, international government relations officer at crypto trade OKCoin, added:

“Taxing the ultra-wealthy has little if any influence on the slumping adoption among all Americans and non-Americans into electronic assets, specifically Bitcoin. […] It’s foolish to believe that they (and anyone) will look to Bitcoin as a means to’hide’ their riches given that Bitcoin leaves a permanent digital footprint”
Better ways
Douglas Borthwick, chief marketing officer in digital asset firm INX, stated that seeing digital resources and Bitcoin (BTC) as a place to hide wealth is”rather off-base.” While U.S. tax residents can still purchase Bitcoin on offshore platforms without demanding Know Your Client and Anti-Money Laundering requirements in place, there are severe risks associated with custody and delivery.

“They invest in high-ticket items to guard against inflationary purchases. Think of Masters’ paintings and parcels of property. There are lots of approaches that ultra-wealthy investors employ with their accountants to prevent more substantial taxes. I’m not sure that digital assets would lead the charge there.”
OKCoin’s Byun opined that the ultra-rich will still continue to maintain their prosperity”through tried and true way since they have access to the brightest lawyers, financial advisers and advisers.”

An indirect impact?
Even if digital assets are not any good for concealing households’ actual net worth, there might be other avenues to get a hypothetical riches tax to heighten millionaires’ interest in crypto. Here’s just one:

This could become enough of an external shock to create wealthy investors reconsider their portfolios’ structure and recalibrate them so as to give more weight to the more risky nonetheless higher-yield assets.

To put it differently, the hypothetical tax could embolden the wealthy to invest in cryptocurrencies and crypto derivatives to cancel the stagnating gains from more conventional assets.

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