Joe Biden’s White House administration has proposed a Digital Asset Mining Energy (DAME) tax which would force bitcoin miners to pay tax to the amount of 30% of their electricity costs. The move has been slammed by bitcoin advocates and political opponents alike as the thin cover of environmentalism fails to hold water.
What is The DAME Tax?
The Digital Asset Mining Energy, or DAME tax is a proposed tax that would add 30% to the electricity costs of bitcoin miners.
Bitcoin mining firms would have to disclose to the government how much electricity they use, the source of that electricity, including whether or not it is renewable, and the cost of purchasing the electricity.
Interestingly, this would also apply to electricity produced off-grid, such as from natural gas that would otherwise be flared or vented – in other words, wasted.
The key aspect is that any bitcoin mining operations in the United States would become more expensive by almost a third, a huge increase to the operational costs of the firms, putting them at a huge economic disadvantage compared to miners in other jurisdictions.
How Would The DAME Tax Affect Bitcoin Mining In The United States?
Operational costs in bitcoin mining come almost entirely from purchasing electricity.
The tax would add 30% to this expenditure, making bitcoin mining almost a third more expensive than it would be in other countries with similar electricity prices.
Bitcoin miners are location agnostic and always seek the lowest electricity prices, so this tax wouldn’t affect them as much as it would other industries, but this would still be a massive blow.
Such a huge increase in costs could force bitcoin mining firms in the U.S. to curtail their current expansion plans, shrink their current operations, or even move out of the United States altogether.
When approached for comment, Satoshi Action Fund CEO and co-founder Dennis Porter was damning in his assessment of the proposed tax, arguing, “The White House’s proposed 30% tax would result in the United States losing its position as the global leader on bitcoin mining. We would lose out on the future growth of this evolving tech industry.”
Is There A Precedent For This In Bitcoin Mining?
The United States is currently the global leader in bitcoin mining by hashrate, boasting a colossal 35.4% of the network’s total.
However, once upon a time, China was the global powerhouse when it came to bitcoin mining.
When China banned the practice in 2021, nearly half the Bitcoin network went offline and moved abroad, with the U.S. being the largest beneficiary.
It should be stated, however, that approximately 21% of Bitcoin’s hashrate was still coming out of China in May 2022, despite the ban.
The DAME tax would be a different story.
Rather than banning bitcoin mining, the Biden administration simply wants to make it a lot more expensive.
Instead of having to hide your mining operation (something much easier to achieve in China anyway), the exact opposite is true here.
The government wants all the information about bitcoin mining operations that it can get, and it wants to tax them into oblivion.
The effects would likely be even more dramatic for the United States, with an even greater proportion of the Bitcoin hashrate leaving the country’s shores.
Porter continued in his scathing assessment of the proposed tax, “Imagine if the United States had put a tax on the Internet and Internet data centers in the 90s. All of the jobs, talent, and economic impact would have left this country and gone to nations like China and Russia.”
How Is The White House Justifying This Tax?
The White House claims the tax is “Making [bitcoin miners] pay for costs they impose on others.”
The report makes the case that bitcoin miners create costs for citizens and businesses in the U.S. “in the form of local environmental pollution, higher energy prices, and the impacts of increased greenhouse gas emissions on the climate.”
It also claims the tax “encourages firms to start taking better account of the harms they impose on society” and that bitcoin mining “has negative spillovers on the environment, quality of life, and electricity grids” where they set up their mining operations.
The White House recognizes that other industries use as much, or even more, electricity than bitcoin mining does, but that those other industries have positive effects on society, whereas the “broader social benefits [of bitcoin] have yet to materialize.”
The report states that local tax income from mining firms is more than offset by energy price increases that result from the electricity demands placed on the grid by bitcoin mining.
Biden is hoping to rake in $3.5 billion in tax revenue from the DAME tax over a 10-year period.
A well-established goal of this White House administration is getting to net-zero carbon emissions, and environmental concerns have been front-and-center since Biden took office.
Whilst the report recognizes that the DAME tax might push miners into other countries with more carbon-intensive energy grids, the hope is that other jurisdictions will enact similar legislation, leaving bitcoin miners with nowhere to hide.
How Realistic Are The Stated Goals of The DAME Tax?
To put it bluntly, the DAME tax has no chance whatsoever of achieving its aims.
The tax would prevent bitcoin miners from facilitating the build-out of new renewable energy production infrastructure and make it unfeasible for them to participate in the grid-stabilizing programs they currently partake in.
In this way, the tax actually makes it more difficult, and less economically feasible, to make the U.S. energy grid net-zero through renewable energy generation.
A study by ERCOT found that building flexible load data centers, including bitcoin mining operations, actually leads to a decrease in carbon emissions, even in cases where total electricity generation increases.
This is due to the fact that bitcoin mining operations can shut down when demand becomes too high, give energy back to the grid, and act as buyers of last resort, buying up electricity that would otherwise be wasted.
Because of this, renewable energy production through wind and solar, which have intermittent periods of generation that often don’t match up with periods of demand, becomes profitable when it otherwise wouldn’t be.
By driving bitcoin miners out of the U.S. with this punitive tax, the opportunities for green energy initiatives are dramatically decreased.
The U.S. power grid is currently only 20% renewable, whereas the Bitcoin network is estimated to be approximately 60% renewable by the Bitcoin Mining Committee.
Signatories of the Crypto Climate Accords aim to get the global Bitcoin network to net zero by 2030.
At this rate, they’ll manage this impressive feat before the U.S. does.
Despite the Bitcoin network and the United States government seemingly wanting the same thing, the DAME tax is only going to make it more difficult for either one to achieve its goal.
Does The Tax Unfairly Target Bitcoin Mining?
Critics of the tax argue that it places the responsibility for the grid’s carbon emissions on the purchasers of the electricity, in this case, bitcoin miners.
Bitcoin mining uses less than 1% of electricity consumed in the U.S. every year, yet no other industry is being targeted by a punitive tax.
If the White House wants to make the energy grid more renewable, then electricity producers should be the target of legislation, not one particular industry that purchases the electricity.
Bitcoin miners often set up in rural areas, away from residential buildings, thus avoiding the “local environmental pollution” claimed by the White House.
It should also be noted that such “pollution” is limited to the noise pollution made by fans, or, in some cases, water pollution from drained coolant.
Other industries, such as manufacturing or heavy industry, cause more noise and more types of pollution, such as air pollution. Yet these industries are also not the subject of penalizing taxes.
Because bitcoin miners also set up close to the source of electricity production, they are dramatically more efficient than other purchasers of electricity because of how much energy is lost in transmission.
In this way, bitcoin miners are able to buy less electricity from producers than other industries.
This actually results in savings for other customers, not increased prices, when compared to the effects of other industries.
Bitcoin mining is actually far less damaging to the environment than is often reported, and far more useful to the goal of increasing renewable energy build-out.
In short, there is no possible justification for the precise targeting of the bitcoin mining industry by the DAME tax, which is nothing more than a sanction on miners.
Is There Any Political Opposition To The DAME Tax?
Republicans have generally been more favourable to Bitcoin than Democrats, and the tax will face its fiercest opposition in the Republican-controlled House of Representatives.
In general, Republicans have been eager to strip back Biden’s environmental initiatives, which has been a subject of hot debate in the ongoing discussion over the debt ceiling crisis.
On the Democrat side of things, presidential candidate Robert F. Kennedy Jr has opposed the planned tax.
He posted a lengthy thread on Twitter condemning DAME, arguing, “bitcoin [is] a major innovation engine. It is a mistake for the U.S. government to hobble the industry and drive innovation elsewhere.”
He went on to call the proposed tax “a bad idea” and made the case that bitcoin mining uses the same amount of energy as video games, yet there are no proposed attacks on the video game industry.
This furthers the notion that bitcoin mining is being unjustly targeted.
He also argued that the environmental argument is simply a cover to go after “anything that threatens elite power structures.”
He identified Bitcoin specifically as an example of a technology that the establishment might be afraid of, as it threatens their hegemony over monetary policy.
Additionally, he stated, “We need cash and [bitcoin] to ensure freedom” and that “a diverse ecology of currencies, not just a single, centrally controlled one”, is essential to a resilient economy.
He finished his Twitter thread by saying, “We are seeing today how fragile our over-centralized system is.”
Bitcoin advocates can hope that if Bitcoin-friendly Republicans don’t win the next presidential election, Democrat candidate Kennedy will.