The voices of Tax Policy Center's researchers and staff
In what has become common practice, a handful of senators and Administration staffers tried over a few days to draft a highly complex bit of tax legislation in a (at least a metaphorical) backroom in the dark of night. The piece of the massive infrastructure bill just approved by the Senate would require some in the cryptocurrency business to report transactions to the IRS.
Predictably, word of the provision leaked and well-connected crypto industry lobbyists pounced. In short order, a group of senators negotiated a split-the-difference compromise but it never got a vote on the Senate floor.
Who understands crypto?
Would the original reporting requirements have wrecked the crypto business? Would that even be a bad thing? Would new trade reporting raise $28 billion over 10 years, as the congressional Joint Committee on Taxation (JCT) estimates? Would the amended version have made it easy for crypto traders to continue to avoid tax? Senators voting on the bill had no idea.
Sen. Ted Cruz (R-TX) may have gotten it partly right this week when he said, "There aren't five senators in this body with any real understanding of how cryptocurrency operates." Indeed, Cruz may have been guilty of uncharacteristic understatement.
The problem is that neither Congress nor the public understands cryptocurrency, its tax issues, or whether either the original reporting requirement or the revised version would accomplish what appears to be a sensible policy goal, which is to end tax cheating by crypto investors.
Listen to the experts
Here’s a better idea: Congress should strip the provision out of the fast-track infrastructure bill. Instead, it should take a few months to try to understand the crypto industry and how transaction reporting would work. Then it should add a sensible, workable provision to the broader social spending bill that Congress will debate for most of the rest of this year.
The Treasury career staff has been working on crypto compliance for a while and the Biden budget included a couple of reporting proposals. But they were not the same as the Senate measure that had less clear paternity.
This stumbling around in the policy darkness is hardly new, but it is getting more common. Back in the day, a lawmaker would identify a tax issue. It would get chewed over by experts well before getting much public attention. The idea might, eventually, get a committee hearing where advocates and opponents would argue their cases in public. Actual experts at the JCT, Treasury, and perhaps the Congressional Research Service, would weigh in. So would outside tax lawyers and economists. Journalists would comb out the issues and the politics.
Not perfect, but better
I’m not suggesting that old-style regular order was some form of legislative Nirvana that always got the right answer. Working through the committee process was painfully slow and cumbersome. It gave lobbyists and their legislative friends years to slow-walk or even derail legislation that might cost clients and political allies money. It was an opportunity for politicians to drag out debate and, especially when it came to business provisions, create a steady flow of campaign contributions.
And it didn’t always result in workable legislation. But it at least improved the odds. And every once in a while, Congress accomplished just what it intended.
That’s not how it works any more. For the past few decades, the congressional tax-writing committees largely have been sidelined. Few hearings. Fewer markups. Little real expertise.
Last minute deals
Instead, tax bills often are written at the last minute in the offices of the House Speaker or Senate Majority Leader by a handful of pols with little or no actual knowledge of the issues. The few staff in the room are tasked primarily with making sure a bill hits some arbitrary revenue target.
An extreme recent example was the 2017 Tax Cuts and Jobs Act (TCJA). While some provisions had been well-vetted, others appeared to be made up on the spot. Sec. 199A pass-through business deduction, I’m talking to you.
The result: Bad policy and drafting errors that create unintended consequences. The TCJA, for instance, left yawning legal gaps it left to Treasury to close, much to the dismay of those who thought the department’s interpretations titled too far to business.
Congress should give Treasury staff some flexibility to fill in details of complex issues. But how much is too much?
How do these bills get written? Something like this:
“Oh crap, CBO says we need another $20 billion to make the bill revenue neutral.”
“I’ve got a $40 billion revenue-raiser in my back pocket.”
“If we cut it in half, will JCT give us a $20 billion score?”
“We’ve got an hour to get the amendment to the floor. Anybody got a problem?”
“Let’s do it.”
Legislative sausage making is one thing. This is more like grabbing random offal in the dark and throwing it in the meatgrinder.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.