The recent buzz about Kamala Harris and her tax plans have certainly been catching my attention, and I am more than a little worried, yet curious as to what this could mean for the crypto community.
First things first: Let's address the notion of taxing unrealized gains is at least controversial.
Now, that's something which rather flies in the face of traditional investment principles, it feels like we've always acted on the assumption that you only pay taxes when you actually sell an asset and realize a profit. The idea of being taxed on paper gains feels, er, a bit like being asked to pay for a meal you haven't eaten yet.
That said, one needs to rise beyond the shock value and look into the fine prints that have been brought on by the proposal. From what I understand about the information, this proposed tax would basically only concern those whose wealth or income goes over $100 million. Now, I don't know about you, but I'm definitely not in that category. I'd also bank on most crypto investors not being in that category. Therefore, on a practical level, this might actually not really be such a doomsday as some people would make it to be.
Yet, I am nagged by a feeling that the precedent this could set is not healthy. History time and again shows that measures starting with only the ultra-wealthy eventually trickle their way down to broader sections of the population. An example would be income tax. While alarmism should never hold sway here, vigilance taken in the long-term perspective is no less important.
More broadly, I first consider the knock-on effects of such a policy: would it deter long-term investment? Perhaps it would drive the rich investors to find other investment instruments, perhaps offshore? These are tough questions to which there are no simple answers, yet quite relevant as we move into this very changing landscape.
What interests me the most as a crypto fanatic, however, is how such policies would mix with unique characteristics of digital assets.
Many cryptocurrencies are by nature decentralized, so the implementation of any such tax would get complicated. If unrealized gains have to be taxed in this world, do we then shift towards more privacy-focused coins or decentralized finance platforms?
Ultimately, while one can easily get swept up in the fear and speculation regarding possible policy changes, my view is that levelheadedness is paramount in the face of such developments. What investors and citizens can do best is to remain informed, engaged in constructive dialogue, and active in having their voices heard within the democratic process.