Gold and silver, on the other hand, are considered mere property, like a television or a chair. The difference is tremendous, especially when factoring in the current regime of legal tender laws. Basically, FRNs, as money themselves, are not taxed when they change hands. Of course, taxes abound and there’s plenty of taxable events to consider and we are taxed on numerous levels. But at the level of the currency itself, there’s no tax…it’s a medium of exchange; a facilitator of transactions. Precious metals, however, are taxed twice. First, you get taxed at the state level upon acquisition of your coins, except where there are no applicable state sales or use taxes or in certain cases where exemptions are provided (e.g., in California, coin purchases of more than $1,500 are not taxed). Second, when selling your metals, you will also pay federal capital gains tax (up to 28%) if you receive more than you originally paid.
So what does this all mean? It means that the system is set up in a way to favor government issued money. This might be all well and good if the system weren’t severely flawed. Since it’s inception in 1913, however, the Federal Reserve has implemented policies that have significantly eroded the purchasing power of our FRNs. Of course, the government itself has been quite complicit in the affair, but it’s the Federal Reserve’s purported mission to maintain “price stability.” From 1913 through today, the FRN has lost approximately 95% of its purchasing power, according to some estimates. How’s that for price stability? It’s no wonder folks are looking for alternative currencies, and why so many people store their FRNs in the form of gold and silver in an attempt to keep up with (and hopefully surpass) inflation.
To remedy the situation, either (a) taxes must be removed from precious metals and other forms of currency used by people to facilitate transactions in the marketplace (such as Bitcoins, which are a recent development and largely unregulated), or (b) such alternative currencies must be deemed “legal tender” so they can compete on a level playing field with FRNs and other government issued currencies (including foreign governments). As it stands, trying to use alternative currencies as money is cumbersome, complex, expensive, and often times downright scary in light of the risks of prosecution and how the transaction is structured.
All of this begs the question: Shouldn’t Congress, the peoples’ elected representatives, be doing something about this? A small group of them are trying, but they are meeting a lot of resistance. H.R.77 (the Free Competition in Currency Act of 2013) was introduced on January 3, 2013 and is sponsored by Representative Paul Broun of Georgia. On January 25, 2013, the bill was referred to the House Subcommittee on Regulatory Reform, Commercial and Antitrust Law. The bill would repeal the federal law establishing U.S. coins, currency, and FRNs as legal tender for all debts, public charges, taxes, and dues. It prohibits any tax on any coin, medal, token, or gold, silver, platinum, palladium, or rhodium bullion issued by a state, the U.S., a foreign government, or any other person. It also prohibits states from assessing any tax or fee on any currency or other monetary instrument that is used in interstate or foreign commerce and that has legal tender status under the Constitution. Finally, it would repeal provisions of the federal criminal code relating to uttering coins of gold, silver, or other metal for use as current money and making or possessing likenesses of such coins, and abate any current prosecution under such provisions and nullify previous convictions. Sadly, there is only one co-sponsor (Representative Thomas Massie of Kentucky) and plenty of opponents.
Some states are trying something similar, but their laws obviously cannot change federal legal tender laws. For example, Senate Bill No. 99 was introduced on January 7, 2013 by Indiana State Senators Greg Walker and Jim Banks to make U.S. issued gold and silver coins exempt from state taxes (sales, use, and capital gains). The bill has been referred to the Committee on Tax and Fiscal Policy. The bill could become law as early as July 1, 2013 and the income tax aspects would take effect on January 1, 2014. In a paper for the Austrian Scholars Conference, Dr. William Greene explains how state legal tender laws can be an effective tool in the battle against the Federal Reserve and its confiscatory policies – basically ending the Federal Reserve from the bottom up, grass roots style. According to Dr. Greene, “Over time, as residents of the State use both FRNs and silver and gold coins, the fact that the coins hold their value more than FRNs do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (FRNs). 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 FRNs for any transactions.” Utah passed a similar bill, HB-317, in 2011 legalizing government issued gold and silver coins.
There’s no telling whether change will come from the bottom up or from the top down, but it seems change is coming. Some argue that it must, given the trajectory of the FRN and our economy. In any event, alternative currencies should be embraced by anyone who cares about liberty and economic freedom. If FRNs are so great, then they will be used and alternative currencies won’t. It’s not very complicated. And any store may choose to accept or not to accept alternative forms of payment, so voluntariness in transactions would not be violated.