• David Sacks voiced his opposition to a tiny 0.01% crypto transaction tax, raising concerns about tax creep and expanding bureaucracy.
• The Trump administration has toyed with a radical idea: ditching the IRS entirely and funding the government through tariffs.

David Sacks, the White House’s point person on crypto and AI, recently shut down the idea of a mere 0.01% tax on cryptocurrency transactions. He made his views clear during a lively discussion on the popular “All-In Podcast.”

The proposal, floated by tech investor Jason Calacanis, was designed to build up government reserves in Bitcoin [BTC] and other digital currencies.

This concept, brought forward by the tech investor and podcast host, was quickly met with skepticism and unease.

The conversation then broadened out to the bigger picture of government taxation. Sacks made a key point: even seemingly small tax policies tend to grow over time, ultimately impacting a much wider group of people than initially planned.

“That’s always how taxes start”

His comments weren’t just off-the-cuff; Sacks drew a parallel to the history of U.S. income tax.

Way back in 1913, when it was first introduced, it only touched a small percentage of very high-income earners. But, as history shows, tax policies have a way of expanding, eventually reaching millions of everyday Americans.

Source: X

Calacanis’s idea was fairly simple in its design. He suggested that every single crypto transaction within the U.S. should incur a 0.01% tax, collected in whatever crypto asset was being traded at the time.

His argument was that this would generate a consistent flow of digital assets for the government, boosting its standing in an increasingly digital financial world.

In Calacanis’s own words,

“Crypto wants to be legal. Crypto wants to be regulated. They want the rules. They want the rails. Why don’t we charge every transaction in the United States 0.01% in that native currency and put it in the stockpile?”

Sacks, however, wasn’t convinced. He countered, cautioning that even a seemingly tiny tax like this could pave the way for a more problematic future.

“That’s always how taxes start. They are described as being very modest. When the income tax started, it only applied to a thousand Americans, and the legislators swore up and down that it would never be applied to middle-class people.”

Sacks also pointed out that even these small taxes can lead to bureaucratic red tape, creating more regulations for businesses and frequent crypto users. He further mentioned that taxing personal wallet transfers would go beyond just targeting speculative trading activities.

Sacks’s worries are grounded in well-documented historical trends.

A “modest” tax today, a financial burden down the road?

The 16th Amendment brought in the federal income tax in 1913, aimed initially at only the wealthiest individuals.

The initial tax rate was just 1% on incomes over $3,000, affecting a very small portion of the population. Fast forward to 1918, and the top rate had skyrocketed to 77% on incomes exceeding $1 million due to the demands of World War I.

We’ve seen a similar pattern emerge in the crypto space.

At first, crypto taxation was mainly focused on capital gains, but gradually, the IRS has broadened its reach to include mining rewards, staking income, airdrops, and even transactions between individuals’ own wallets.

Even as the White House has pushed back against the crypto transaction tax concept, a separate but related debate is heating up regarding the whole future of federal taxation in the U.S.

Abolish the IRS?

Recent statements from Commerce Secretary Howard Lutnick hint that former President Donald Trump’s administration is exploring a pretty radical overhaul of our current tax system.

Instead of relying on income tax as the primary source of funds, the idea is to switch to tariffs on goods coming into the country from overseas.

Lutnick explained the idea,

“Donald Trump announces the External Revenue Service, and his goal is very simple. To abolish the IRS and let all the outsiders pay.”

He argued that foreign companies doing business in the U.S. reap considerable benefits but often sidestep American taxes,

“You ever see a cruise ship with an American flag on the back? They have flags of Liberia or Panama. None of them pay taxes. Every super tanker, none pays taxes. Alcohol, all foreign alcohol, no taxes.”

This shift, according to Lutnick, could mean lower taxes for Americans while still ensuring government coffers are full thanks to tariffs on foreign entities.

He even estimated that adopting “reciprocal tariffs” – essentially, raising import taxes to match those imposed by other nations – could bring in a hefty $700 billion each year.

White House says no, but is this really the end of the story?

The discussions around cryptocurrency taxation and the larger conversation about federal tax reform are definitely intertwined. Crypto advocates are not just against new transaction taxes; they’ve also been critical of the IRS for unclear guidelines and overreaching regulation of the crypto industry.

Recent actions in Congress, like a bipartisan Senate vote to overturn expanded IRS reporting rules for crypto transactions, suggest a growing pushback against excessive taxation and government monitoring.

Meanwhile, the Trump administration’s tariff-based approach makes you wonder how crypto taxation might evolve if we move towards a fundamentally different tax landscape.

If income taxes are reduced or even eliminated, could crypto transactions eventually become targets for taxation as part of a wider revenue-gathering strategy?