A growing number of Americans understand that the reckless creation of fiat currency by the Federal Reserve System is causing many of our economic problems. They want to abolish the Fed and return to the gold-backed currency that brought America and the world unprecedented prosperity throughout the 19 th century.
But that will not happen overnight. Big banks and other special interests reap enormous profits from the present system, while many Americans are accustomed to paper money and do not grasp the deep connection between sound money and lasting prosperity.
That’s why sound money activists are launching exciting initiatives at the state level to challenge the monetary monopoly of the Fed. Their strategy is based squarely on the U.S. Constitution, specifically Article 1, Section 10, which states, “No State shall…coin Money: emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…”
This logically implies, as constitutional scholars assert, that states have an explicit right under the Constitution to make gold and silver Coin legal tender for the payment of debts, at least within the jurisdiction of the state.
Utah Restores Gold and Silver to Legal Tender Status, Starts Trend
In 2011, Utah became the first state to do so by recognizing gold and silver coins that are issued by the United States as legal tender.
Of course, Federal Reserve Notes, the U.S. paper currency, are not backed by gold and silver. However, since 1986, the U.S. Mint has issued American Eagle gold and silver bullion coins in various denominations and designated them legal tender for payment of debts. These are the coins that Utah designates as legal tender (Federal Reserve notes also remain legal tender).
Utah’s action is important for several reasons. First, it helps to educate Americans about the historic role gold and silver have played in America and elsewhere as the most widely accepted form of money.
Second, it clearly identifies gold and silver as “money” rather than simply an investment. Investments can be taxed, while “money” is traditionally not taxed. Money is a medium of exchange and a store of value, not an investment in the usual sense.
That’s why Utah’s groundbreaking law also eliminates all state taxes on gold and silver, such as sales taxes and state capital gain taxes. Of course, Utah has no power to eliminate federal taxes, but its action still sends a message to its citizens that gold and silver are money.
This elimination of all state taxes on gold and silver is the most important practical aspect of Utah’s action. The 50 states have widely varying laws on the taxation of gold and silver bullion. Some tax it like any other commodity, while others eliminate sales taxes on gold and silver bullion above a certain threshold, such as $1,000.
However, if gold and silver really are accepted as legal tender, i.e. a form of money, they should be no more subject to taxation than Federal Reserve Notes are. If you go to a bank teller and exchange five 20-dollar Federal Reserve Notes for a single 100-dollar Federal Reserve Note, you are simply exchanging one form of money for another.
Likewise, if you are in Utah, you can exchange Federal Reserve Notes for gold and silver and, so far as Utah is concerned, you are again exchanging one form of money for another.
Other states are starting to follow Utah’s lead.
Texas and Louisiana Eliminate Sales Taxes on Precious Metals
In 2013, both Texas and Louisiana enacted laws to completely eliminate the state sales tax on gold and silver bullion, though neither state took Utah’s bold step in declaring gold and silver coins legal tender.
At present, almost a dozen other state legislatures are considering proposals similar to the laws passed in Utah, Texas, and Louisiana. Some would merely eliminate state sales taxes on gold and silver, while others follow Utah in declaring gold and silver coins legal tender.
This movement to advance the sound money cause at the state level is still in its early stages, but it is likely to grow dramatically in the years ahead. It taps into the frustration many Americans feel with the out-of-control money printing by the Fed and their corresponding desire for a return to sound, constitutional money.