GOP Balks at Closing Crypto Loophole as Debt Deal Revenue Raiser

Senate Republicans balked at the idea of closing a tax loophole for crypto investors in ongoing debt limit and budget talks after President Joe Biden floated the proposal.

Biden tweeted Tuesday that Democrats think Congress should cut “tax loopholes that help wealthy crypto investors” as opposed to slashing funds for other government functions. The loophole, known as a “wash sale,” allows crypto investors to claim losses by quickly selling and repurchasing their digital assets. The rule prohibiting that practice doesn’t currently apply to virtual currencies.

“When we’ve had our menu of available options that there’s been a lot of support for, that’s been one of them,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) said.

Closing the loophole has been proposed as a pay-for by both parties, and is estimated by the Joint Committee on Taxation to raise nearly $17 billion over a decade. While Democrats said it’s a revenue raiser that garners support, Republicans doubted it could be a solution for debt limit negotiations.

Sen. Thom Tillis (R-N.C.), a member of the Finance Committee, said the recent crypto losses may mean that the measure wouldn’t actually raise as much revenue anymore. The collapse of FTX in November and subsequent meltdown in digital assets has led to a renewed spotlight on the under-regulated market as investors scramble to recover.

Still, Tillis said it’s a provision that isn’t partisan and “most people think” is reasonable, adding that it could come up in budget talks.

“I mean, if you’re taking a look at other pay-fors, it will come up, but it’s diminished greatly since the FTX failure,” Tillis told Bloomberg Tax.

Others, though, would rather use the revenue for other bills. Sen. Cynthia Lummis (R-Wyo.), who’s working on a crypto regulation bill with Sen. Kirsten Gillibrand (D-N.Y.) that would close the loophole, said the money should be used to fund employees at the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“I fear that if this is used as a revenue-raising matter in the budget deal, that it would be used for another purpose and the opportunity to use it to actually regulate the industry that benefits from the wash sale rule would be a misuse of the funds,” Lummis told Bloomberg Tax. “So I would oppose that.”