- Trump’s tax plan could cut asset taxes and boost activity in the U.S. crypto industry.
- Investors anticipate higher crypto margins through potential tax-free capital gains.
- Experts believe the plan could help the rich even more and widen the wealth gap.
President Donald Trump has announced plans to eliminate the capital gains tax in 2025, aligning it with his broader tax policy agenda. This includes making the Tax Cuts and Jobs Act of 2017 permanent, plus cutting taxes. The announcement sparked immediate reactions in the crypto universe, with investors anticipating major changes. This uncertainty was reflected in Bitcoin’s sharp 8.92% drop within 24 hours, trading at $75,493.81, signaling market volatility as investors react to policy shifts.
What’s The Proposal?
The Trump administration has made it clear that it will abolish the capital gains tax as of 2025 for asset sales like stocks and cryptocurrencies. Currently, long-term capital gains are taxed at rates of 0% to 20%, depending on the income of the taxpayer. The Trump initiative will also explore alternative methods to extend and make permanent the temporary tax breaks introduced in the 2017 Tax Cuts and Jobs Act (TCJA), which are currently set to expire after 2025. In addition, it aims to reshape tax liabilities across the nation.
Besides eliminating capital gains tax on US-based assets, the plan proposes a 30% levy on foreign crypto assets. This two-fold approach could reshape global crypto dynamics by prioritizing domestic projects while taxing offshore activities. The administration has yet to release full details or a legislative timeline, but more information is expected as discussions evolve.
What Would Be The Economic Impact?
The Republican Senate Budget Committee estimated the cost of extending the 2017 tax cuts and Trump’s new proposals to be around $1.5 trillion. In contrast, the House of Representatives projected a significantly higher cost of approximately $4.5 trillion, reflecting broader assumptions about the potential economic impact. According to sources, the Committee for a Responsible Federal Budget (CRFB) reported that making the tax cuts permanent could add about $1.9 trillion to the national debt.
Besides that, the Bipartisan Policy Center estimates the Senate proposal could increase deficits by $5.7 trillion over a decade. The CRFB’s full projection for Trump’s entire fiscal agenda ranges from $5 trillion to $11.2 trillion. These fiscal estimates have drawn concern over the proposal’s long-term sustainability.
Hence, while the plan may encourage investment, it risks placing additional strain on national debt figures, especially under extended tax relief.
The Wealth Benefits It Can Draw Into
The prospect of tax-free capital gains has excited U.S. crypto investors who foresee improved margins on their holdings. However, the market’s initial response was volatile, with Bitcoin plunging from a high of $82.87K to $75,493.81, signaling uncertainty amid policy anticipation, according to CoinMarketCap. Market capitalization dropped to $1.49 trillion, even as trading volume rose by 336.46% within 24 hours.
Besides the excitement among domestic holders, concern has risen over the 30% tax on foreign crypto assets. This move may prompt asset migration to U.S. platforms while draining liquidity from international markets. Consequently, market watchers fear potential volatility and capital flight in global crypto exchanges.
However, this diversion might act as an incentive in creating new crypto ventures within the United States. However, there are a number of critics who point out that such moves will increase unregulated practices.
Related: Trump’s Tax Cuts and Tariffs: What’s Next for the Economy?
Will The Rich Get Richer?
Even while the purpose of this proposal is to stimulate the economy, opponents argue that it only benefits the wealthiest Americans who receive most of their income from long-term capital gains. The reduction or elimination of capital gains tax would serve to increase income inequality as the wealth of the rich would only continue to increase. Many observers have popularly noted that “The rich get richer,” especially under policies with unequal tax relief.
