Taxing unsold crypto isn’t policy — it’s economic sabotage

For the better part of a decade, Washington has tried to force 21st-century financial technology into a tax code built for another era. The results are predictable: confusion, unnecessary compliance costs, arbitrary tax treatment, and a bureaucracy that makes ordinary people pay for Washington’s failure to keep pace.Today, buying a cup of coffee with bitcoin can create a tax-reporting obligation, moving digital assets across a network can generate taxable events, and miners and stakers can face taxes before they have even sold the assets they earned. That is not sound tax policy — it is government getting in the way of innovation.The House Ways and Means Committee now has a chance to fix it. In June, it unveiled a series of bills built around three principles: greater clarity, equal treatment with traditional financial assets, and new compliance rules. Chairman Jason Smith (R-MO) deserves credit for taking the issue seriously, and several reforms are overdue. But Congress should be equally clear about what this effort must not become: an excuse to quietly raise taxes or dress up new revenue grabs as “parity.” The strongest parts of the legislation start from a basic principle: People should not need an accountant to use digital assets. The Less Tax Paperwork for Digital Asset Owners Act would reduce the tax consequences of small network fees, simplify accounting for widely traded assets, and provide more sensible treatment for certain dollar-pegged stablecoin transactions.The federal government has no legitimate interest in forcing taxpayers to calculate microscopic capital gains on every ordinary transaction. When the potential liability is measured in pennies and the compliance burden in hours, the problem is the tax code — not the taxpayer. Tax compliance should never cost more than the tax itself.The Providing Analogous Rules for Digital Assets Act addresses another problem: Digital assets are frequently denied tax treatment that Congress already provides to economically similar activity. The legislation would let qualifying dealers and traders use mark-to-market accounting, extend existing trading safe harbors to certain foreign investors, and provide tax-neutral treatment for qualifying lending transactions.These are not special favors for crypto — they are the removal of special penalties against it. Congress already decided these rules make sense for stocks and bonds, and there is no principled reason to impose worse treatment simply because an investor uses newer technology.The biggest unresolved issue is mining and staking rewards. Congress should apply a rule that is foundational to the tax code: Tax the gain when it is realized.Yet miners and stakers can be forced to recognize ordinary income the moment newly created assets are received — even if those assets are never sold and even if their value later collapses. That approach is economically incoherent and hostile to innovation. Validators, developers, and entrepreneurs can relocate. Capital and jobs can move with them. If Washington imposes an impractical tax regime on the people building decentralized networks here, it should not be surprised when that activity migrates overseas. These rewards should be taxed when the gain is actually realized — not through a complicated compromise that preserves the problem.The legislation also proposes extending securities’ wash-sale restrictions to digital assets. There is a legitimate argument for treating economically similar investments under comparable rules. But neutrality cannot mean extending every existing restriction while calling the result reform.Wash-sale rules prevent investors from immediately recognizing certain losses when they quickly repurchase a substantially identical asset. Extending them to digital assets would limit a treatment that investors can use today and therefore raise federal revenue. Congress should be transparent about that: If digital assets are to face the same anti-abuse rules as securities, that change belongs in the broader legislation, not as a stand-alone revenue raiser.The principle should be simple: Where the tax code unfairly disadvantages digital assets, remove the disadvantage. Where Congress adds new restrictions in the name of parity, pair them with meaningful relief. Modernization should leave taxpayers better off, not hand Washington another excuse to collect more.HIT THE GAS ON AMERICA, SLAM THE BRAKES ON WASHINGTON: HOW TRUMP LEADS REPUBLICANS TO VICTORYDigital assets are no longer a theoretical experiment; they are becoming part of the financial system. The United States now has a choice: modernize its tax code to reflect that, or keep forcing new technologies through rules written for a different economy.The right approach is a tax code that taxes actual economic gains, treats comparable activity consistently, and lets innovation compete on its merits. Congress has a real opportunity to write the tax rules for the future of finance. It should take it.David McIntosh is president of the Club for Growth. He served as a Republican representative from Indiana from 1995 to 2001.