State Efforts to Facilitate Ownership of Gold and Silver Ramp Back Up in 2018
Many state legislatures kick off their 2018 sessions this month and that means continuing efforts to facilitate gold and silver ownership at the state level.
Bills introduced in Tennessee and Alabama would repeal state sales taxes on the sale of gold and silver bullion, and an Arizona bill would build on a foundation set last year and take another step toward treating gold and silver as money. These efforts not only help expand the market for gold and silver in the US, they also have the potential to undermine the Federal Reserve’s monopoly on money.
Arizona is leading the way toward sound money. Last year, Gov. Doug Ducey signed a bill into law that was sponsored by Rep. Mark Finchem repealing state capital gains taxes on gold and silver specie.
The new law removes the amount of any net capital gain derived from the exchange of one kind of legal tender for another from the gross income on an individual’s state income tax. In other words, the purchase of gold or silver bullion, or utilizing gold and silver in a transaction, will no longer be subject to state taxes on the exchange.
“What the IRS has figured out at the federal level is to target inflation as a gain. They call it capital gains,” Finchem said during a committee hearing. He noted that the bill would help Arizona residents “protect their conversion of one kind of currency for another.”
Passage into law marks an important first step towards currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, the people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency. The freedom of choice expanded by the new law will help Arizona residents to secure the purchasing power of their money.
Passage of a bill introduced by Finchem this year would build on this foundation and further expand the role of sound money in Arizona. House Bill 2013 (HB2013) would recognize silver and gold as liquid capital for trust companies. Practically speaking, the bill does two things.
- Modifies the definition of “liquid capital” to include legal tender for trust company certification. (Sec. 1)
- Defines legal tender as a medium of exchange, including specie, that is authorized by the U.S. Constitution or Congress for the payments of debts, public charges, taxes and dues. (Sec. 1) Specie is defined as coins having precious metal content.
Trust businesses act as “fiduciaries.” A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary handles money or other assets for another person. A trust company in Arizona must hold specific levels of capital reserves in order to operate, including a certain amount of liquid capital.
Under current law, liquid capital is defined as capital in the form of certificates of deposit issued by banks, savings banks or savings and loan associations that do business in Arizona. These certificates of deposit are insured by the FDIC. HB2103 would expand the definition to include gold and silver. Finchem explained the impact of the bill.
This would fortify the capital asset reserve of trust companies in Arizona. Since the FDIC only insures up to $250,000 of personal deposits in an FDIC insured bank, and they can take up to 99 years to pay a claim under federal law, this move permits investors in trust companies to place hard assets on deposit as ready, liquid capital reserve without converting the real money to fiat currency and then digital currency as in a deposit in the ACH system.”
From a broader perspective, passage of HB2013 would recognize hard money as a legitimate risk reducer. It would expand the role of gold and silver as money in Arizona and further undermine the Federal Reserve’s monopoly on money.
The bill is already moving forward. On Jan. 16, the House Committee on Federalism, Property Rights and Public Policy approved HB2013 by a 5-3 vote.
A bill filed in the Alabama Senate would exempt the sale of gold and silver bullion from state sales and use tax, encouraging its use and taking the first step toward breaking the Federal Reserve’s monopoly on money.
Sen. Tim Melson (R-Florence) introduced Senate Bill 156 (SB156) on Jan. 11. The legislation would exempt the gross proceeds from the sale of gold, silver, platinum, and palladium bullion in the form of bars, ingots or coins from sales and use tax in the state for five years after the date of enactment.
The bill is similar to a bill pending in the Alabama House (HB19). The bills are substantively the same.
Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. Essentially, this is what taxing the “sale” of gold a silver. As Ron Paul said during testimony in favor of the Arizona bill last year, “We ought not to tax money – and that’s a good idea. It makes no sense to tax money.”
A similar bill is working its way through the Tennessee legislature.
The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” States have simply ignored this constitutional provision for years. It’s impossible for a state to return to a constitutional sound money system when it taxes gold and silver as a commodity.
Legislation like this takes a step towards that constitutional requirement, ignored for decades in every state. Such a tactic would set the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.
By making gold and silver available for regular, daily transactions by the general public, state laws have the potential for wide-reaching effect. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that when people in multiple states actually start using gold and silver instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.
“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).
“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”
These state efforts open the door for a serious push-back against the Fed and its monopoly on money. But state action alone won’t accomplish anything. Ultimately will be up to everyday Americans to take advantage of these state laws and actually start using gold and silver when possible. This is the perfect opportunity to engage in acts of individual nullification. Without individual action, the politics really won’t matter. The bottom line is it’s up to us.
This article was based on reporting by the Tenth Amendment Center.