Lessons learned from the Infrastructure Bill and what it means for candidates
While Congress is one step closer to passing the landmark $1 trillion Infrastructure Bill, Tuesday was not a good day for the cryptocurrency industry. As crypto lobbyists lick their wounds from the day’s loss, the next question on everyone’s mind is what’s next for US regulation of digital currencies.
What does cryptocurrency have in common with infrastructure? One of the ways congress proposes to pay for this Bill is by imposing tax reporting requirements on cryptocurrency brokers which could tighten the regulation of crypto. This plan could garner about $28 billion towards infrastructure over 10 years.
The original plan would have brought in about $100 billion over 10 years by beefing up the IRS’s enforcement of businesses and individuals who cheat on taxes, however, Republicans were against expanding the reach of the Agency.
More definitions are needed
Several Senators raised objections to the crypto regulations and the provision unleashed a lobbying frenzy by crypto and internet freedom advocates alike. Opponents of the provision argue that the definition of brokers is too broad, which could hinder innovation by putting new tax-reporting obligations on software developers and cryptocurrency miners, who don’t have access to crypto users’ data that the IRS would need.
Amendments to the provision were proposed that better defined the language but it failed to get Senate approval, thereby pushing the debate over crypto and taxes over to the House.
Very few crypto brokers currently report transactions to the IRS. Brokers post buy and sell orders on exchanges and the exchanges are required to collect personal information from users and report their activity annually to the IRS. The IRS defines crypto as property, like stocks or gold. So you would pay capital gains tax when you sell crypto or cash it in at a profit.
Back to the House
Advocates, including the Blockchain Association, the industry’s main advocacy group for crypto businesses, will head back to the House to push for the removal of broad language in the provision. The co-chairs of the bipartisan Blockchain Caucus sent a letter to other House members urging for the change in language.
Regardless of the final outcome of the provision, this will certainly up the ante for crypto advocacy groups to expand their reach on and off the Hill. Aside from more national education, one of the ways they will do this is by supporting candidates that are crypto-friendly; candidates who embrace crypto donations, and who have a deregulatory, lase-fair stance on digital currencies.
Now accepting crypto donations
Crypto got its debut in US politics back in 2014 when 32-year-old tech entrepreneur and republican, Andrew Hemingway, ran for governor of New Hampshire. He was not only the youngest gubernatorial candidate in NH history but also the first candidate to accept bitcoin contributions.
According to Hemingway, the demand for bitcoin, which came from many of his supporters, led him to accept this form of currency. About 20% of his contributions came from bitcoin. This is of no surprise since the state was very crypto-friendly, mainly attributed to the influx of libertarians moving to the state.
Bitcoin: A fundraiser’s friend and enemy
Since his gubernatorial campaign, other politicians have started following suit and allowing crypto donations. The Federal Elections Commission (FEC) approved bitcoin contributions in 2014, deciding that they should be treated as in-kind contributions. Other in-kind designations are considered as non-cash goods and services like office equipment or food. The biggest caveat is that the FEC caps bitcoin donations to $100, unlike the individual donation maximum of $2,700 for campaigns.
A big turn of events for crypto donations came this year from the National Republican Congressional Committee (NRCC) who announced that it will start accepting cryptocurrency donations, making it the first national party to do so. The NRCC is using BitPay to process donations and convert them into US dollars before transferring them into the NRCC bank account. This allows the NRCC to bypass the $100 FEC cap on transfers and accept up to $10,000 per year from individuals.
Many people are skeptical of crypto’s transparency. With stories of hackers and criminal groups using the anonymity of crypto transactions to move money, the currency has a long way to go to improve public perception. It’s also this anonymity of transactions that have campaigns concerned. While transaction addresses can be traced, the transactors themselves are not identified. It is this concern that led Kansas to ban bitcoin campaign contributions. To our knowledge, no other state has issued this contribution ban.
Bitcoin’s volatility and limited contribution cap are big barriers to political fundraising. Yet, digital currencies are becoming more and more attractive to candidates and there are some instances where the limited cap could work in a candidate’s favor.
A new kind of PAC
While candidates and fundraisers grapple with the pros and cons of donations, the crypto industry is also pushing money to pro-crypto candidates.
BitPac was formed in 2014 as the first Bitcoin Political Action Committee. Its sole purpose is to support candidates who support digital currency’s acceptance. Coinbase also created a PAC in 2018.
HODLpac has also made a splash recently on the crypto PAC scene to support crypto-friendly congressional candidates with the goal of getting legislation passed that creates regulatory-friendly policies for crypto. This PAC is non-partisan, advertising that it’s supported both democratic and republican politicians.
Crypto is ready for the debate stage
Love it or hate it cryptocurrencies will continue to dominate the political stage for decades to come. At the very least, urban candidates should consider accepting crypto as a form of donation using platforms like BitPay to accept contributions. While crypto will not be a major mode of contributions for a while, urban candidates can attract younger donors through digital currency.
Congressional candidates, particularly in urban areas with younger constituents, should evaluate their stance on cryptocurrency. Pollsters should analyze voter views on the digital currency in their congressional districts. Candidates should consider their constituents’ views and their own views when considering an active stance on crypto.
Without a doubt, the Infrastructure Bill will be a catalyst for crypto businesses to pour more money into national advocacy and PACs to support congressional candidates who will favor the legislation. It’s a gold rush in the industry and congressional candidates can fair well by adopting a favorable stance on digital currencies.
At Bridges Consulting we advise our clients to know their constituents before taking a stance on any issue. We can partner with clients to craft position statements that resonate with voters and attract donors. If you’re running for office give us a call today to see how we can partner with your campaign.