-- Posted 9 March, 2011 | | Discuss This Article - Comments:

It wasn’t exactly headline news, but it wasn’t a quiet event either.  The Utah state house has passed a new bill that would allow the state to explore solutions to issuing its own currency, one made of gold or silver, and it seeks to allow its citizens to trade in gold and silver as bullion, not as arbitrary dollars. The bill, which many expect to fail in the state Senate, is certainly another small victory in the move toward sound money.

All in Favor, All Opposed

While many have focused purely on the politics of the matter, there are underlying elements of the bill that should be considered individually, if not part of some greater goal of expanding the uses for sound money. 

Under the bill, state sales taxes, income taxes, and capital gains taxes would be removed entirely from bullion.  Opponents say the taxation changes would lead to lost revenues of up to $300,000 per year, but consider the greater effect.

Thanks to a virtual hodgepodge of tax laws and systems, inflation has become a taxable event.  That is, if one were to own $10,000 in gold and silver, and it were to appreciate to $11,000 during a period of 10% inflation, the investor would owe capital gains taxes on that $1,000 of “gains,” even though there was really nothing gained. 

Of all the elements of the final bill, this was the one that would resonate with most investors.  All told, a majority of states assess some kind of tax on gold and silver, whether it is sales tax, income tax, or capital gains tax, or a combination of each.  The sales tax, though, is perhaps the most egregious.  To charge a tax for converting $36 of paper money to a $36 silver coin is the equivalent of charging a tax for asking a cashier to give you a $10, $5, and five $1 bills in exchange for a $20 bill.

What This Bill Means for Silver

In the short term, this bill should be labeled as just another one of silver’s excellent spotlights in the press.  For the first time in a long time, investors are again considering how inflation plays into their financial futures and their everyday spending habits.  This bill is an obvious rejection of fiat money, and it even furthers a stand against a tax code that has encouraged consumption and spending and discouraged real, physical savings.

Remember that the metals markets are still very much comprised of a very small retail side and plenty of institutional shorts; however, with each passing day, it is proposals like these that help bring more people to see the benefits of sound money.  With at least some politicians seeing benefit in a hard money currency, there is no better time to start collecting bullion coins in sizes that are suitable for trade.  Of particular interest would be smaller coins with silver in smaller proportions.  Pre-1964 dimes would be a perfect example investment, especially if bills like these do eventually become law.

Dr. Jeffrey Lewis

www.silver-coin-investor.com