The Breakdown - What Biden's Tax Hike Has to Do With Money Printing and Inflation

Episode Date: April 24, 2021

Today on the Brief: Coinbase Pro to list USDT A new Bitcoin Mayor in Tennessee ETH and BTC ETF updates Our main discussion looks at President Biden’s proposed increase of the capital gains tax rate. NLW breaks down everything bitcoiners are saying about it, with a particular focus on what it has to do with monetary policy.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

I think the global competition for entrepreneurial talent is going to do nothing but increase. I don't know that Biden's capital gains tax would fundamentally change that, but it could. And in the future, politicians are going to have to think a lot more about themselves as competing with other jurisdictions. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced in a new podcast. distributed by CoinDes. What's going on, guys? It is Friday, April 23rd, and today we are talking about what Biden's

tax plan has to do with money printing and inflation. First up, however, let's do the brief. First on the brief today, Coinbase is listing Tether on their pro service. We've talked a lot about FUD categories this year, and up until a couple months ago, Tether was way up there. Since the settlement with the New York Attorney General, however, that has all but fallen away. The latest example of this is Coinbase Pro listing USDT. So this will allow traders to deposit the stable coin, and next week they'll be able to begin trading it. Of course, this move is seen largely as vindication for tether. Coinbase is now a public company.

It's regulated even more tightly and under even more scrutiny than it was as a private company. The fact that it is now allowing tether on its platform suggests that it believes that the biggest legal issues for USDT are firmly in the rearview mirror. Next up on the brief today, watch out Mayor Suarez because Jackson, Tennessee's Scott Conger is coming for your title as America's Bitcoin Mayor. Conger caught Bitcoin Twitter's attention this week when he tweeted out, What does the future of cryptocurrency look like for the city of Jackson? We're exploring payroll conversions for our employees. even more exciting, we're seriously exploring mining Bitcoin to add to our balance sheet. He added in an email to CoinDesk, we are currently exploring opportunities for our employees

to diversify their deferred compensation by adding a Bitcoin conversion option. That will allow our employees to utilize dollar cost averaging to increase and enhance their portfolios. Because Bitcoin is an appreciating asset, if we can work out the initial capital cost as well as the energy cost, I firmly believe it will be a benefit to our finances, as well as giving our local energy authority to balance out their energy output by mining an off-peak hours. Of course, he added the laser eyes as well. Third and finally on the brief today, ETFs, ETFs everywhere. So first, let's talk Canada. Earlier in the week, three ether ETF started trading. Today, a fourth, this one from three IQ and coin shares, began trading

on the Toronto Stock Exchange. As I mentioned earlier in the week, the first day of trading for these ETFs was less impressive than the breakout Bitcoin ETFs earlier in the year, about one-fifth of the trading volume, but it was still decent by historic ETF standards. Meanwhile, back in the U.S., the SEC has started its official review of CryptoN's application. This is the trust backed by the CBOE that tried once and failed in 2019. This is the third ETF application out of nine total live applications that is formally being evaluated, including Van Eck and Wisdom Tree. Now, many think that there may be multiple ETFs approved simultaneously, but most that think that that believe that it won't be till the very end of their available review period at the end of the year.

But with that, let's shift to our main discussion. I've spent a fair bit of time on ways in which the government under the Biden administration is shaping up to be more open to crypto and Bitcoin than the last administration. So I would be remiss to not mention an area where that's definitely not the case. Yesterday, the big news story was Biden's intended increase in the capital gains tax. President Biden is set to propose nearly doubling the capital gains tax rate to 39.6%. The stated goal of this is to pay for social spending that addresses inequality. Urban Brookings suggests that it would raise $370 billion over a decade.

For those making a million dollars or more, the new top rate, when combined with the Obamacare levy, would be 43.4%. That's opposed to a current base rate of 20%, and it's even worse for New Yorkers and Californians, where New York would be as high as 52.22%, and California would see taxes of 56.7%. The central political argument will be, wages and wealth should be treated the same, on one side, versus investment capital encourages the development of the infrastructure of the future on the other side. What's clear is that the stock market does not like this. It slid the most that it has in a month. Of course, this isn't yet official. Biden will detail his American family's plan in a joint address to Congress on April 28th that will include whatever the final proposal is.

Let's talk now about responses from crypto-Twitter. The first couple are lines of thinking that, frankly, don't impress me very much. I saw a number of people accusing those who care about this as effectively larping as rich. In other words, sentiment along the lines of most of the people who are complaining about this aren't going to be affected, they don't have this money, blah, blah. There are a bunch of reasons I take issue with this, but one of the most fundamental is that aspiration is the lifeblood of American society. It is totally reasonable to make arguments to people that they might want to consider their political positions on the basis of their current financial status, not their future financial status. But as Robert Browning wrote

in the poem Andrea Del Sarto, ah, but a man's reach should exceed his grasp, or else what's a heaven for? People are allowed to have an opinion on tax issues that might not directly affect them, and they're especially allowed to believe and operate as though those issues will one day affect them. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12% and swap between more than 75 market pairs with the instant nexo exchange.

Try the Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. The second take I saw just a little bit of was something to the effect of everyone in crypto has done really well this year, have a heart and stop complaining. There is so much wrong with this that I barely know where to begin. First, having done well does not mean one is subject to punishment. Indeed, penalizing success is one of the biggest reasons that this measure will get a lot of pushback. Second, in no universe is believing that the capital gains rate should remain low, or frankly really any position vis-a-vis taxes, necessarily indicate someone being cold or callous to the plight of others. Indeed, that argument would presuppose a belief that government is better positioned to allocate that additional revenue

for societal good than other mechanisms of doing so ranging from markets to philanthropy. That is a good debate to have. The size and role of government is one of the most fundamental debates in American history. But it's only productive if people on both sides of it recognize the other as capable of having a heart and still disagreeing with each other. When we start demonizing the people who disagree with us as not caring about anyone but themselves or their positions, we've already lost the good that might otherwise be won from the discussion. This does, however, get me to another line of thought I've seen many share on Twitter, which has to do with not the taxation itself, but the efficacy of the government in spending it.

Ryan Selkis tweeted, I wouldn't mind paying a high-cap gains tax rate if the product I was paying for weren't so shi. Tony Scheng wrote this a different way, saying, I realize today that I'm indifferent to tax increases, but super angry that the tax collectors suck at allocating capital. Like, I'm going to give it away anyways, but why am I giving you an opportunity to squander it? So there are a lot of dimensions to this. One is a general sense of the inefficiency of government lawmaking, where so much goes into pork barrel spending and random crap needed to buy off legislators to get things passed. Another part, though, that is especially for the libertarian part of the Bitcoin and Cryptosphere, is more fundamental.

a core disagreement with the military industrial complex and a desire to not have a huge portion of one's taxes go to foreign wars. Another interesting variant on this criticism of the measure was that it wasn't in isolation doing enough. Jay Yalowitz tweeted, a 43.4% capital gains tax without a wealth tax is a direct tax on my generation. Boomers already have their capital gains and are more wealthy through land whose gains are deducted against decades-long depreciation. To be clear, this isn't necessarily representative of the

standard take on crypto-Twitter, which is much more no-new taxes than, you can't add this tax without adding another tax, too. However, I think it's notable in that opposition to this is coming from multiple sides and that some are fundamentally arguing that it won't redress the inequality that it purports to, and instead will simply calcify another type of generational inequality that still exists. Still, by far the most common take on crypto Twitter has to do with the connection between money printing and taxation. The super simplified version of this that you probably saw a dozen people tweet is, why tax when they can just print? I think the most notable thing about that is that you're seeing it not just from diehard bitcoiners, but from lots of different people. I'm seeing that type of message on Facebook, for example.

There is a bigger connection being made here as well, however. VJ. Boyapati tweeted, the great tragedy of the U.S. government doubling the tax rate on long-term capital gains is that by printing trillions upon trillions of dollars, it has created a massive amount of fake stock appreciation that it can now collect when anyone chooses to sell or diversify. Austin all read from Lambda School tweeted, 1. Interest rates to 0. 2. Pump system full of cheap money. 3. Massive tax hike on capital gains.

Still, it was Neval Ravakant who tweeted the most prescient version of this, and it was all the way back on February 10th. The road to socialism via inflation. Print money, crash the reserve currency, destroy savers, and force them into inflated assets. Asset inflation leads to inequality. Demonize asset holders and tax the nominal gains, thereby confiscating the real value of the assets. This, to me, is the most interesting part of the structural debate. If you accept the premise of Naval's tweet, this capital gain shift effectively becomes the way the government makes back the money that it prints. Put differently, instead of addressing the underlying issue, interventionist monetary policy that

chooses asset prices, this layers on more bad policy on top of that that allows the government to recoup some gains. Now, proponents of this capital gains increase have snarkly said that the group of people who have been saying that the Fed exacerbates inequality should love this as a way to address it. They are welcome to their Twitter clout, but of course, the answer is that Bitcoiners aren't looking for the lipstick on a pig answer. Still, there is one more dimension of all this that I want to explore. Tim Draper tweeted another argument that you'll see a lot of in the coming weeks. Forty-three point four percent capital gains tax might kill the golden goose that is America, Silicon Valley. People need an incentive to build long-term startups of value. In California, that would be a 56.4% tax burden. Greater than 50% spells death to job creation. I think the argument

is perhaps a little overstated, but I think a version of it that comes closer, comes from Akita Beer, who tweeted a picture of the Biden headline, a picture of Puerto Rico, and a caption that said, everyone on Zillow right now. The intimation being, of course, that everyone is on Zillow trying to find property in Puerto Rico where they have a much better tax status while still technically being in the U.S. I do believe that the mobility of the entrepreneurial base is bigger than it's ever been. COVID broke the hegemony of Silicon Valley the place in a major way. Companies in the future are going to be built by default as hybrid, if not fully remote. I don't believe the flocking to places like Miami and Texas and Puerto Rico are accidental. And I also don't think that they are, to use a

recent favorite word of Jerome Powell, transitory. Ryan Selkis again. If you liked talent flight from California to Texas and Florida last year, you're going to love immigration patterns from the U.S. in a future that taxes, investors, and entrepreneurs at greater than 50%. I think the global competition for entrepreneurial talent is going to do nothing but increase. I don't know that. that Biden's capital gains tax would fundamentally change that, but it could. And in the future, politicians are going to have to think a lot more about themselves as competing with other jurisdictions. For now, as I'll get into tomorrow, I don't believe that it was Biden's tax hike that caused this major dip that we're in a part of. But like I said, more on that on the weekly recap tomorrow.

For now, I hope you are headed off to a great spring weekend. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace. We're witnessing the greatest paradigm shift in finance in modern history. Join thousands of newsmakers and influencers talking the future of money at Consensus by CoinDesk. A live virtual experience of leaders, change makers, virtual reality meetups, keynotes from Ray Dalio, Gary Vaynerchuk, and much more. Get an up-close look at the boom in crypto, the surge in institutional investment in Bitcoin, the NFT mania, the breakneck innovation in decentralized finance,

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