Cato Institute Says Tax Burden Is Hindering Bitcoin’s Use in Everyday Payments

The U.S. Internal Revenue Service has treated virtual currencies such as Bitcoin as property rather than currency since 2014, requiring users to calculate cost basis and capital gains for every sale, exchange or payment. Even buying a cup of coffee creates a taxable event, and frequent users could face hundreds of additional pages of tax filings each year, undermining Bitcoin’s viability as an everyday payment method.

In an analysis published on February 3, 2026, the Cato Institute urged Congress to abolish capital gains taxes entirely. If that cannot be achieved, it said the exemption for gains on payment instruments should at least be raised from the $200 threshold established in 1997 to $10,000 and indexed to inflation. The top tax rate is 37% for short-term holdings, while the maximum federal rate for long-term holdings is 23.8%. The proposals drew renewed media attention on April 16.