BOISE, Idaho (March 14, 2017) – Today, the Idaho House passed a bill that would eliminate state capital gains taxes on gold and silver specie, and encourage its use as currency. Final approval of the legislation would help undermine the Federal Reserve’s monopoly on money.
House Majority Leader Mike Moyle introduced House Bill 206 (H206) on Feb. 23. The legislation would amend Idaho revenue statutes, providing “that capital gains and losses on precious metals bullion and monetized bullion sales be added to or subtracted from Idaho taxable income.”
The House approved H206 by a 56-13 margin.
“According to the U.S. Constitution, Article I, Section 10, there is only one thing that a state can declare as currency if they think that our federal currency is going out of whack and some might argue that they think our federal currency is going out of whack already,” Rep. Ron Nate said in support of the bill from the House floor.
The Framers of our nation established that gold and silver are money, but federal taxing authorities in recent decades have required taxpayers to pay taxes on this form of money when its exchange for Federal Reserve Notes results in nominal capital “gains.”
Similar to a bill recently passed by Arizona’s state House, Idaho H206 is a revenue neutral proposal over the long run. That’s because both precious metals gains (income) and losses are backed out of the calculation of taxable income for Idahoans. While H206’s passage will have little fiscal impact on Idaho tax revenues, it will have a larger impact on Idahoans’ freedoms.
Enjoying the backing of the Sound Money Defense League, the Idaho Freedom Foundation, and Money Metals Exchange (an Idaho-based national precious metals dealer), the Idaho proposal seeks to correct the misclassification of precious metals by the IRS as “property” rather than money. It is only because of this misclassification in the first place that precious metals income and losses are included in the federal adjusted gross income number that flows through to the taxpayer’s Idaho tax return.
Assessing Income Taxes on the Exchange of Money Is Unjust
Income taxes are one major way government bureaucrats penalize holders of precious metals. If you own gold to protect against the ongoing devaluation of America’s paper currency (which results from the inflationary practices of the Federal Reserve), you may end up with a “gain” on your gold when it’s priced in dollars. Not necessarily a real gain, mind you. It’s frequently nothing more than a nominal gain – but it’s nonetheless considered income against which the government assesses a tax.
The Federal Reserve strives for and openly announces a target inflation rate, and it’s these policies that cause these artificial “gains” which precious metals owners experience.
By removing precious metals from the state income tax, Idaho can stop compounding the problem and instead help promote the adoption and widespread use of constitutional money.
While Idaho citizens are not currently subjected to “double taxation” in the form of sales taxes, more than 20 other states do. In most states with sales taxes, precious metals owners are taxed on their original purchase and then taxed again if they have nominal “gains” when they sell their precious metals.
But that’s not all. At the federal level, these dollar-denominated gains on precious metals are taxed at the discriminatorily high 28 percent long-term capital gains tax rate. Capital gains on other assets are taxed at 15 percent or 20 percent, depending on one’s income level.
And, unless a state passes a bill like the one under consideration in Idaho, the “income” one receives from owning and selling gold and silver increases the taxes they must pay at the state level too.
Passage into law would mark an important 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 H206 would allow idaho residents to secure the purchasing power of their money.
“This isn’t going to end the fed’s monetary monopoly overnight, but it sets the foundation and opens the door for more market activity by the people,” Tenth Amendment Center executive director Michael Boldin said. “This is an important part of the overall strategy, and activists in Idaho should continue working to get this bill passed.”
Currently, all debts and taxes in Idaho must be paid with either Federal Reserve Notes (dollars), authorized as legal tender by Congress, or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.
But 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.”
The Idaho bill take a step towards that constitutional requirement, ignored for decades in every state. Such a tactic would undermine the monopoly or the Federal Reserve by introducing competition into the monetary system.
Professor William Greene is an expert on constitutional tender and said 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.”
Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.
H206 now moves to the Senate for further consideration. At the time of this report, it had not received a committee assignment.