US Senators Clash Over $700 Billion Crypto Tax Gap

US senators debate crypto tax policy during shutdown

US senators are weighing critical cryptocurrency tax proposals in the middle of a partial government shutdown, sparking sharp divides between regulators and the crypto industry.

U.S. Shutdown Clock. Source: White House

Lawmakers are considering tax breaks for everyday crypto transactions, new rules for staking income, and aggressive measures to close the $700 billion annual tax gap. 

While Coinbase pushes for equal tax treatment with traditional finance, Senator Elizabeth Warren is fighting back against what she calls an unnecessary favor to the crypto sector.

Coinbase pushes for fair treatment

Lawrence Zlatkin, vice president of tax at Coinbase, urged senators to adopt rules that mirror traditional finance. 

Mr. Zlatkin at the tax hearing. Source: U.S. Senate

He proposed exempting crypto transactions worth up to $300 from taxation, arguing this would make using cryptocurrency for payments more practical and help innovation stay in the United States.

“The guiding principle is simple: parity with traditional finance. The same tax rules should apply to the same economic activity, whether involving goods, stocks, or blockchain tokens,” Zlatkin said.

Warren pushes against special breaks

Lawmakers also debated ways to reduce the $700 billion tax deficit, considering tighter reporting requirements and treating staking rewards as earned income subject to progressive taxation.

Senator Elizabeth Warren voiced strong opposition to exemptions, claiming crypto investors already avoid around $50 billion annually in unpaid taxes.

Senator Warren opposes special tax exemptions on small cryptocurrency transactions. Source: US Senate

She warned that offering breaks would divert investment from other markets while handing crypto holders enormous advantages.

Warren tied potential exemptions to risks of money laundering and sanctions evasion, declaring that all proceeds from digital assets should be taxed under the same rules as securities and commodities.