Jeff Deist, president of the Ludwig von Mises Institute, has explained the recent changes in tax codes laid out by the United States Internal Revenue Service on Bitcoin and other cryptocurrencies – and pointed out the ways in which technology alone cannot resist stringent regulation.
For those unfamiliar with the new tax treatment guidance, the IRS requires taxpayers to treat bitcoins as property and not as currency. Deist explains the new rules in layman’s terms.
Deist emphasizes how bitcoin being treated as property will result in capital gains-type treatment accorded to bitcoin transactions. This treatment is taxable by the IRS, explains Deist.
Using a metaphor involving a farmer growing wheat and a farmer raising mules, Deist explains how the barter transaction between the two farmers in the eyes of the IRS is viewed exactly the same way as if it was being conducted in cash.
The second the farmer exchanges a good for cash, he or she owes income tax on that transaction. Despite the difference in cash and goods, barter trades result in income tax.
Deist believes that new technology will not suddenly change tax codes:
“We cannot depend on technology somehow or different forms of trade to get us out of taxes because conceptually the idea of what constitutes taxable income in our society…is any sort of increase in your personal wealth.”
Deist believes the new IRS guidance “creates an incredible burden in compliance costs.” He used the example of a person buying Apple stock at 3 different periods in a 10 year span. The stock buyer would have to track the prices of the stock at the time of purchase so that when they sell the stock they will pay capital gains tax or record a capital loss.
When it comes to digital currencies, this tracking of prices at the time of purchase is more complex than stocks as people intend to use the digital currency on an everyday basis.
Deist said that these new tax regulations reflect how central bankers and governments view digital currencies, and that “technology alone can’t save us from the state and its 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.”
Deist became president of the Mises institute after serving as press secretary to Ron Paul from 2000 to 2006 and as his chief of staff during the 2012 election. He previously worked as a tax attorney specializing in mergers and acquisitions for private equity clients.
The Mises Institute is a tax-exempt libertarian organization founded in 1981 and named after Austrian School economist Ludwig von Mises. The institute is located in Auburn, Alabama.