Trump Proposes Crypto Tax Cuts, Targets U.S.-Made Tokens for Tax Exemption

In a recent interview, he advocated for eliminating capital gains taxes on crypto transactions.

“They have them paying tax on crypto, and I don’t think that’s right,” Trump said. “Bitcoin is money, and you have to pay capital gains tax if you use it to buy a coffee? I was talking with a friend. He said, ‘It really shouldn’t be taxed,’ and I agree. Maybe we get rid of taxes on crypto and replace it with tariffs.”

This proposal directly addresses a common frustration among crypto users: the complexity of capital gains taxes on routine purchases. For instance, when Bitcoin is used to buy coffee, users must pay tax on any increase in its value since purchase. Such requirements discourage people from using digital currencies for everyday transactions.

Meanwhile, Vice President Kamala Harris has proposed higher long-term capital gains taxes. Under her plan, the top rate would rise to 28% for individuals earning over $1 million annually. This contrasts with President Biden’s proposed budget for 2025, which suggests increasing the tax to 39.6% for top earners. 

However, should Trump win the presidency and Republicans control Congress, capital gains tax hikes would likely be ruled out, according to Erica York, senior economist at the Tax Foundation.

Trump’s Crypto Tax Plan: U.S. Tokens Only

Trump’s proposal aims to eliminate capital gains taxes on U.S.-made cryptocurrencies, promoting their use in daily transactions. He emphasized a preference for domestically produced tokens, excluding Chinese-made ones. Trump’s strategic move contrasts with Italy’s recent decision to impose a 42% tax on Bitcoin capital gains. 

Higher earners face the net investment income tax (NIIT) of 3.8% on capital gains, interest, dividends, and rents when modified adjusted gross income surpasses set thresholds. For single filers, the limit is $200,000, while for married couples, it is $250,000, with no adjustments for inflation. Combining this with long-term capital gains taxes, high earners pay up to 23.8% on investments.

Table 1. US Capital Gains Rates

Capital Gains Type Holding Period Tax Rate Income Range Short-Term 1 year or less 10% Up to $11,000 (Single) 12% $11,001 – $44,725 (Single) 22% $44,726 – $95,375 (Single) 24% $95,376 – $182,100 (Single) 32% $182,101 – $231,250 (Single) 35% $231,251 – $578,125 (Single) 37% Over $578,125 (Single)

Long-Term More than 1 year 0% Up to $44,625 (Single) 15% $44,626 – $492,300 (Single) 20% Over $492,300 (Single)

Special Rates Varies 28% (Collectibles, Small Business Stock) N/A

Source: US Internal Revenue Service

Republicans may attempt to eliminate the NIIT, though experts like Howard Gleckman from the Urban-Brookings Tax Policy Center warn this could significantly worsen the federal budget deficit, which reached $1.8 trillion in fiscal 2024.

Trump’s proposal excludes most tokens, including Ethereum, but includes popular cryptocurrencies such as Bitcoin and XRP. Trump believes that Bitcoin and similar assets should be treated like other forms of money, free from additional taxes. His stance aligns with earlier calls to replace income taxes with higher tariffs.

Trump Advocates for Tariffs Over Income Tax

Trump has emphasized this point, suggesting that tariffs could replace federal income taxes. During an interview with Joe Rogan, he confirmed his stance, saying, “Why not?” However, shifting the revenue source from income taxes to tariffs would require substantial increases in tariffs, which currently contribute only about 2% of federal revenue. 

“When we were a smart country, in the 1890s … this is when the country was relatively the richest it ever was. It had all tariffs. It didn’t have an income tax,” Trump said while speaking with a group of barbers in the Bronx. “Now we have income taxes, and we have people that are dying. They’re paying tax, and they don’t have the money to pay the tax.”

Despite the challenges, Trump’s campaign adviser, Jason Miller, sees this shift as a long-term objective. He also pointed out that the former president’s immediate focus would be to extend provisions from the 2017 Tax Cuts and Jobs Act and implement targeted tax cuts.

Reducing tax burdens has become a cornerstone of Trump’s campaign, with promises to eliminate taxes on tips, Social Security benefits, and overtime pay. While discussions of abolishing income taxes for individuals have been frequent, there has been little mention of the fate of corporate income and payroll taxes.