The full impact of the Infrastructure Investment and Jobs Act will not be seen until the social element of the legislation, the “Build Back Better” bill, is resolved. The widely promulgated $1.2T cost of the Infrastructure Act is far from paid. The legislation increases the deficit by $256 B in the first 10 years and only generates $415 B in new spending, according to the Congressional Budget Office.
The civil engineers indicate that bringing American infrastructure up to code will cost $2.6 T over 10 years. The engineering side is complex, and the systematic failures we have seen in water, transportation and other systems have been massive. There is little in our experience to suggest that the estimate is biased. The need is there, but the lack of funding and the massive social expenditures, like those proposed in Congress, could generate future problems for infrastructure investment. The budget deficits and diversion of infrastructure funding to other priorities can be expected to impede the actual amount of future infrastructure investments.
Coins come in from the cold and down to earth
The infrastructure legislation did continue to clarify the legal status of blockchain assets. It is a back handed compliment for the IRS to define the tax liabilities of an activity. And it has been a long time coming. The infrastructure bill in its quest for revenue added $28 B over ten years from taxing Crypto trades.
The IRS has had regulations on the books since 2014 and like all tax law, they grew to more regulations in 2019. Crypto assets are clearly covered by current income tax rules. But enforcement demands that the service knows who owns them and at what price?
The brokerage industry has helped the IRS with the ownership issues in stocks and Section 80603 of the infrastructure bill will do the same for crypto assets. The section creates crypto information reporting rules for brokers. A broker in this sense is anyone paid to transfer a digital asset. Digital asses are defined very broadly and would encompass far more than just currencies. A digital asset is “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology,” according to H. R. 5083.
The mystery in crypto is about to go away. The IRS will know who owns what and at what price. It’s much less fun to invest that way. And we should expect the IRS to aggressively move to issue regulations and enforce them.
From coins to legal currency
Currencies can be exchanged for value or be a store of value. There have been a wide number and variety of currencies in this country over time. Gold and silver coins, so called hard specie money, have been a constant in our history. But moving away from metal to paper money or paper redeemable in metal was not an easy one. The Green Back was issued to pay for the Civil War in the 1860s and was not automatically accepted as legal tender. The states of Oregon and California sued to prevent it.
The US Stablecoin Report also makes it clear that the closer crypto gets to a currency or a fiat currency clone, the more immediate the regulatory action will be. The macroeconomic implications of another source of money in the economy will drive quick governmental action. Nor is it necessary for the crypto industry to fear being a bank. The banking industry finds banking requirements to be quite profitable. Crypto may eventually become widely accepted as a private money, but not federal legal tender. The states will evolve their own framework subject to federal rules.
The Crypto role in the states
The states have had their role in money creation in the past. Before the Constitution, the colonies issued script. And indeed, California still does, as needed. The states have taken their own track for crypto regulation and without the current surge in federal action, they were headed toward some sort of interstate compact. Federal action, however, changes that and one should expect federal preemption of state rules in conflict with national banking regulations.
The recommendation that Stablecoins be subject to banking regulation challenges the treasury to make regulation of currency like coins a priority. Absent that, we can expect Congress to pick up the mantel. Which state action will be forced to yield to new Federal rules is yet to be determined. Still, all of this Federal action, will demystify the cryptocurrency area with a bright curative light and but still leave plenty of room for innovation.
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