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Precious metals markets can certainly be volatile from week to week, but over time they are a more reliable store of value than Federal Reserve Notes. Gold and silver remain the world’s most enduring and most widely recognized form of money. And, as spelled out in the U.S. Constitution, gold and silver coins are legal tender. Individual states thus can formally recognize gold and silver coins as legal tender alternatives to Federal Reserve Note dollars.
Both Utah and Oklahoma have passed legal tender laws in recent years recognizing gold and silver as money. The metals can be used freely as a means of payment and are free from all state taxes. More than 20 states have already removed sales taxes from precious metals transactions, with Alabama, Tennessee, and Maine now considering their own proposals to do so as well.
Other states, including Arizona and Idaho, are moving forward on legislation to exempt gold and silver bullion from capital gains taxes. Since Money Metals Exchange is located in Idaho, we would be particularly excited to see it become a haven for sound money.
Last Thursday a bill to eliminate capital gains taxes on precious metals passed the Idaho House Committee on Revenue and Taxation. Money Metals President Stefan Gleason testified before the Committee. Here is some of what he had to say:
Stefan Gleason: Our mission is to educate people also about precious metals and help them diversify into this reliable and more stable form of money, really truly a Constitutional money with tremendous history going back to the founding of our country. Gold and silver have been chosen for thousands of years as money because of their qualities as financial insurance, as a store of value, and its practicality as a medium of exchange. The bill I want to talk about today is a straightforward bill. Basically, we don’t want to tax money in Idaho. Idaho already does not tax precious metals with its sales tax, and we’re asking for it to be removed from the calculation of income tax in Idaho.
The Founders of our nation dealt with the collapse of the un-backed continental dollar, and that was fresh in their minds when they created our monetary system and established gold and silver as our nation’s money. In fact, the dollar was defined as a fixed amount of silver, and even in the Constitution the Founders restricted states from making payment in anything other than gold and silver coins for payment of debt. For the first hundred years, our nation’s money gold and silver coinage maintained its purchasing power pretty much consistently, except for a small period of time during the Civil War when we went off the gold standard.
But then about 100 years ago the Federal Reserve was created, and since that time we’ve seen a dramatic decline in the purchasing power of what is now considered the dollar but really is called the Federal Reserve Note. Of course, the last link to gold was severed officially in 1971, and that has led to an acceleration of this devaluation in purchasing power and an explosion in federal government debt during that same period of time.
The people that are most harmed by inflation are wage earners and savers. When the dollar goes down in purchasing power, they lose. Fortunately, an increasing number of citizens are recognizing that owning gold and silver as an alternative form of savings is a good way of protecting some of their wealth, protecting some of their purchasing power, and standing against this ongoing devaluation. It’s also something that helps in periods of financial turmoil, which seem to be increasing under our current system. Gold and silver are a safe haven.
Under current law, however, when a taxpayer sells their precious metals, they may end up with a capital gain because it’s measured against the Federal Reserve Notes that they sell it for. Now it may not be a real gain. In most cases, it’s not a real gain. It’s a nominal gain. It’s an illusory gain. Yet it’s still something that triggers taxation at the federal level, and a taxpayer has to include that in their taxable income if they sold gold and silver bullion or coins.
It’s even taxed at a discriminatorily high 28% rate for long-term capital gains… It’s 15 and 20 for other types of assets. Then Idaho in the calculation of Idaho taxable income essentially carries forward that income number, and then there’s some adjustments that are made on various things according to Idaho statutes to arrive at the Idaho taxable income.
This legislation simply would back out the federal income or loss that somebody reports on precious metals out of their Idaho taxable income. This is something that Idaho can do. Obviously, we can’t mess with federal tax laws, but Idaho decides what it’s taxing as income, and we propose with this legislation that precious metals be removed, because it’s money.
Also, weighing in on behalf of Idaho’s bill to free precious metals from state taxation was an executive of a freedom minded group in the Gem State.
Fred Birnbaum: My name is Fred Birnbaum, with the Idaho Freedom Foundation and I’m here to speak in support of this bill. I’ll be very brief. I think Mr. Gleason covered just about everything. But I’ll make a parallel point. Recently, actually this week, there was a lot of debate about a constitutional amendment, article five convention. I’m not going to re-open that debate. But I think it’s relevant, to some extent, to this bill. I certainly don’t want to overplay that point. What came up and one of the central issues was the unbalanced federal budget, if you will.
And the fact that we’ve accumulated about 20 trillion of federal debt and I think sometimes it’s hard to think of the inflation that we currently have as inflation. It certainly varies. It hasn’t been very significant, say in gasoline. It is in property. But the potential for inflation is huge because the Federal Reserve has now issued about 4 trillion dollars of digital money into the economy. It’s pushed it since the recession. So, I think what this bill does, in many ways, is it’s a prospective measure in that those folks who either own gold or silver now or may in the future, if we do have a real bout of inflation, this will protect them from that.
One of the challenges in getting this and similar bills passed is educating legislators on why gold and silver, being constitutional money, are different from other asset classes. Some politicians just don’t grasp the fundamental distinction.
Committee Chairman: Questions for Mr. Gleason? Representative Gannon?
Rep. Gannon: Thank you Mr. Chairman. Sir, one question I always have asked of me is, if we pass a bill like this, is, well are we picking winners and losers? What about if I invest in a gold stock and I make money on my gold stock or what about oil companies? If we open up the door to one particular kind of investment for a tax break like this, how do I explain to constituents that their particular investments don’t get the same kind of tax break?
Committee Chairman: Mr. Gleason?
Mr. Gleason: Okay. Mr. Chairman. Representative Gannon. It’s a good question. The key distinguishing characteristic here is that gold and silver are money. They’re not a stock, they’re not a piece of property and when it comes to mining stocks and things like that, obviously, that’s not covered here.
We’re talking about taking away taxation on the exchange of one form of money with another. So, people are not unfortunately able to deduct the loss that they take when they have Federal Reserve Notes and they dramatically decline in their value. There is no deduction for that. The deduction is basically everyone is paying the inflation tax and they are not able to recoup that or protect themselves against that, so gold and silver is another alternative form of money. It’s actually much more stable and an historic form of money, and so that’s how I distinguish this. This is about sound money and preserving people’s savings and not giving any kind of special break for an investment class.
Fortunately, there are politicians who understand that not taxing money in any form is a matter of consistency. Idaho State Representative Ron Nate made a strong case for treating gold and silver the same as the Federal Reserve Note when it comes to taxation.
Rep. Nate: Thank you Mr. Chairman.
(I’m) in favor of the motion, this isn’t just an investment. This is a money. And so, Federal Reserve Notes are the nationally recognized money, but according to Article I, Section X of the Constitution, the only thing that the states can declare as money, we can’t coin our own money, the only thing we can use as money is we can declare silver and gold as money.
So, it’s the only real state money that we have control of. And if holding money becomes something that is subject to taxation, then we have – I think – a perverse incentive in our government here, that the money that they declare, that the government declares is legal tender suddenly becomes a tax instrument for them as well.
This makes sense for consistency. If gold and silver coin are money, then we should not tax it when it increases in value. If you argue that we should tax it when it increases in value, then you should also argue that Federal Reserve Notes, when they diminish in value because of inflation, we ought to be able to declare capital losses on those on our tax forms as well.
But because we don’t allow that, we shouldn’t be taxing either capital gains or losses on gold and silver coin. This is a matter of consistency with regards to currency and the tax treatment of it. Thank you.
We’ll certainly keep you updated on the progress of the Idaho bill as it makes its way through the legislative process. In the meantime, the Arizona legislature looks poised to send similar legislation to its governor’s desk.
On Wednesday, the Arizona Senate Finance Committee heard testimony from none other than former Congressman Ron Paul. Dr. Paul was the leading voice in the U.S. Congress for sound money issues during his tenure there. He turned the once obscure idea of auditing, reforming, and ultimately ending the Federal Reserve into a national campaign issue when he ran for President in 2008 and 2012.
Here’s some of what Ron Paul had to say this week in support of Arizona’s bill to eliminate taxes on gold and silver:
Dr. Ron Paul: It would be legalizing competition in a constitutional fashion. It isn’t like saying, “Okay, Arizona wants to print their paper currency again.” Because you’re not allowed to do that. On the monetary issues, the states are talked about in the constitution and they have restrictions, they can’t print money but they also have been told in The Constitution that they can only use gold and silver as legal tender. So, the responsibility is one the states to follow the rules and that meant nobody was supposed to use anything other than silver and gold as legal tender. We’ve had a mess, it’s gotten worse, it started in 1913, there was a climactic end in 1971 but the problems have continued.
If you look at some of the charts, things have been really rocky since ‘71, with the destruction of the value of the money. Since 1971, we’ve lost 95% of the value of the dollar. Believe me, the Gold Standard was invented a long, long time ago, from the beginning of recorded history. Five thousand years ago they used gold and silver, biblically gold and silver, real weights and measures, that’s what they count it by. So, this is not brand new, it’s the governments and the people who seek power are always undermining the restraints placed on governments by honest money. So, I congratulate you for hearing and dealing with this bill, because I think if you do pass this bill it will be a great step forward for a lot of people to understand the money issue and the freedom issue. Thank you very much.
Chairman: Thank you very much Dr. Paul.
If the bills in Arizona and Idaho become law, you can bet similar sound money efforts will spring up in other states. Of course, states won’t be able to abolish the discriminatory federal taxation of precious metals. But state level reforms will catch the attention of members of the U.S. Congress. Sound money victories at the state level will help build political momentum for sound money legislation at the federal level.
Groups such as the Sound Money Defense League are advancing the sound money movement by educating the public on the problems of our inflationary monetary system as well as working with allies in elective office to enact reforms. Setting gold and silver free as competing currencies to Federal Reserve Notes won’t be easy and it won’t happen overnight, but real progress can be made and is being made one step at a time.
Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.