U.S. President Joe Biden said Sunday that he would oppose a debt ceiling agreement that would protect crypto traders while risking the livelihood of other Americans.
"I'm not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistance at risk for nearly a hundred — excuse me — nearly one million Americans," said Biden.
BREAKING: President Joe Biden speaking on the final day of the G7 summit
— Sky News (@SkyNews) May 21, 2023
"I'm not going to agree to a deal that protects wealthy tax cheats and crypto traders while putting food assistants at risk."https://t.co/q2ATjj9RFh
📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/PIf0O5tKXq
Biden also said in his Sunday speech that he could not agree to Republicans' demands for a $30 billion tax break for the oil industry and $200 billion of "excess payments" to the pharmaceutical industry, asserting that preserving the Medicaid program and the employment of 100,000 school teachers or 30,000 law enforcement officers was more urgent.
Reports suggested an ongoing discussion between the White House and Republicans about blocking tax-loss harvesting for crypto transactions. The tax-loss harvesting mechanism involves selling digital assets at a loss to offset capital gains from crypto trading profit, which reduces overall tax liabilities for traders.
Investors must sell digital assets and use the proceeds to buy similar assets within 30 days before or after the sales to claim a loss. Investors of other instruments, such as stocks, also use this mechanism to reduce their tax liabilities.
Biden has highlighted the need to "modernize rules, including those for digital assets" and implement "the wash sale rules to digital assets and address related party transactions" in his budget plan, arguing for the enforcement of the same laws for traditional investments in crypto assets. The White House has also pushed for a 30 percent excise tax on electricity used for crypto mining.
The White House is moving backward in negotiations.
— Kevin McCarthy (@SpeakerMcCarthy) May 20, 2023
Unfortunately, the socialist wing of the Democrat Party appears to be in control—especially with President Biden out of the country.
In addition to ending tax-loss harvesting for crypto trading, the White House has also proposed preventing investors from deferring property swaps taxes. Analysts have estimated that both changes in tax mechanisms will add up to $40 billion in tax revenue for the government.
Sources said Republicans had already rejected the proposals, with Republican House Speaker Kevin McCarthy insisting that what the federal government has "is a spending problem, not a revenue problem."
Default can trigger sell-offs in risk markets
Crypto analysts say that default will likely push the U.S. into a recession, triggering sell-offs in risk assets like Bitcoin. In this situation, the prices of Bitcoin and other digital currencies will decline.
The U.S. hit its $31.4 trillion debt ceiling earlier this year and is running out of funds to pay its obligations. Republicans suggest closing the deficit with $4.8 trillion in spending cuts, which will directly impact federal budgets for public programs. A failure to raise the debt ceiling on time will lead to default as soon as June 1, Treasury Secretary Janet Yellen warned.
Analysts have compared the current debt ceiling issue with a crisis in 2011, in which the government increased the national debt limit three days before it was supposed to default. The debt ceiling mechanism has been in effect since 1917, setting how much money the government can borrow to pay its dues.
Although analysts predict that lawmakers will resolve the debt ceiling issue soon and avoid default, they warn of the long-term effect of the U.S. debt issue. According to analysts, the Treasury Department may pull liquidity from the private sector via a $1 trillion bill deluge to pay for the government's dues. The impact of the Treasury bill sales is equivalent to a quarter of a percentage rate hike by the Federal Reserve.
The decline of liquidity in the market will also prompt investors to sell risky assets. It can also further reduce credit availability for U.S. business entities and households, leading to slowing economic growth.