Minneapolis Fed suggests Bitcoin tax to manage deficits
A recent research paper from the Federal Reserve Bank of Minneapolis suggests that Bitcoin (CRYPTO:BTC) should either be taxed or banned to allow governments to maintain permanent budget deficits.
The paper, released on October 17, highlights that Bitcoin’s fixed supply could disrupt government policies aimed at managing debt through consistent spending beyond revenue.
The Minneapolis Fed explained that Bitcoin introduces what it calls a "balanced budget trap," where governments are forced to balance their budgets rather than rely on nominal debt strategies.
The research uses Bitcoin as an example of a private-sector security that has no real resource claims, proposing that either a tax or legal prohibition could help governments maintain their fiscal policies.
The authors argue, “A legal prohibition against Bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on Bitcoin.”
Primary deficits occur when governments spend more than they collect in revenue, excluding interest payments on debt.
In the U.S., this has led to a growing national debt, now standing at $35.7 trillion, with a current primary deficit of around $1.8 trillion.
According to a report by Reuters, rising interest costs due to increasing debt have exacerbated the U.S. deficit, with interest costs for Treasury debt soaring by 29% this year.
Matthew Sigel, head of digital asset research at VanEck, commented on the proposal on October 21, stating that the Minneapolis Fed joins the European Central Bank in targeting Bitcoin.
Sigel noted that the central bank "fantasizes about legal prohibition and extra taxes on BTC to ensure government debt remains the ‘only risk-free security.’”
This follows the European Central Bank’s recent claims that older Bitcoin holders profit at the expense of new investors, advocating for regulation or even an outright ban to prevent further growth.
According to the research, Bitcoin's rise presents significant challenges to traditional monetary systems, forcing central banks to reconsider strategies to manage national debt and deficits.
At the time of writing, the Bitcoin price was $68,699.16.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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