Tenth Amendment Center

Status Report: States Chipping Away at the Federal Reserve

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Efforts to chip away at the Federal Reserve’s monopoly on money by facilitating and encouraging the use of gold and silver within state borders continue to move forward.

In Texas, legislators are pushing ahead with a bill and a proposed state constitutional amendment during a special section to support establishment of the Texas Bullion Depository, and ultimately facilitate the use of gold and silver as money in the state. Final passage of the amendment, along with its enabling legislation, would exempt precious metal held in the Texas Bullion Depository from ad valorem taxation. This would open the door to currency competition in Texas, and serve to undermine the Federal Reserve’s unconstitutional monopoly on money.

The Texas House passed both Joint Resolution 38 and House Bill on Aug. 3.

The Texas Bullion Depository itself took a major step closer to reality in June when officials formally announced the private vendor that will run the facility. The creation of a state bullion depository in Texas represents a power shift away from the federal government to the state, and it provides a blueprint that could ultimately end the Fed.

Gov. Greg Abbot signed legislation creating the state gold bullion and precious metal depository in June of 2015. The facility will not only provide a secure place for individuals, business, cities, counties, government agencies and even other countries to to store gold and other precious metals, the law also creates a mechanism to facilitate the everyday use of gold and silver in business transactions. In short, a person will be able to deposit gold or silver – and pay other people through electronic means or checks – in sound money.

A new Arizona law that eliminates states capital gains taxes on gold and silver specie went into effect on Aug. 9. The new statute removes another barrier to investing in gold and silver, and using it in everyday transactions. Rep. Mark Finchem (R-Tucson) sponsored HB2014. The legislation eliminates state capital gains taxes on income “derived from the exchange of one kind of legal tender for another kind of legal tender.” The bill defines legal tender as “a medium of exchange, including specie, that is authorized by the United States Constitution or Congress for the payment of debts, public charges, taxes and dues.” “Specie” means coins having precious metal content.

In effect, passage of HB2014 “legalized the Constitution” by treating gold and silver specie as money.

Last month, North Carolina Gov. Roy Cooper signed a bill into law exempting the sale and purchase of gold and silver from state sales taxes. The new law removes an important roadblock in the way of their everyday use as money, taking the first step toward breaking the Federal Reserve’s monopoly. With the governor’s signature, the law went into effect retroactively to July 1, 2017.

In June, Louisiana Gov. John Bel Edwards signed a similar bill into law that went into immediate effect.

While repealing state sales taxes on precious metals may seem like a relatively small step, it removes one barrier to owning gold and silver and eliminates a penalty on the use of sound money.

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, “We ought not to tax money – and that’s a good idea. It makes no sense to tax money.”

Of course, this is all good news for gold and silver dealers and investors. But it has much broader implications. These bills effectively remove taxes from the exchange of one kind of legal tender for another kind of legal tender – after all, gold and silver are money. In other words, individuals buying gold or silver bullion, or utilizing gold and silver in a transaction, would no longer be subject to state taxes on the exchange. This should encourage and facilitate the use of gold and silver in everyday transactions.

Paul said he considered the Arizona bill to be “very important” because it would also serve as an educational effort for other states. But it will also have a practical effect. Passage of HB2014 in Arizona, and efforts in other states to eliminate sales taxes, mark an important first step toward currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, 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 repealing gold and silver taxes allows residents to secure the purchasing power of their money.

People are already using gold and silver in everyday transactions in Utah where United Precious Metals Association (UPMA) set up the state’s first “gold bank.” It offers publicly available accounts denominated in gold and silver dollars in Utah. According to the UPMA, in the past year it has grown 700 percent in assets under management and made up 2 percent of the market for U.S gold and silver coins. You don’t even have to live in Utah to open an account, and an account-holder can conduct business in gold and silver with any other account-holder across the country.

These “bullion banks” – whether state-run or private – can seriously undermine the Fed’s monopoly on money. They allow for the easy transfer of physical precious metals, meaning everyday people can easily transact business using gold and silver. The option to use sound money can force rapidly depreciating Federal Reserve notes out of the marketplace. Constitutional tender expert Professor William Greene 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.”

During the last legislative session, Utah state Rep. Ken Ivory (R-West Jordan) introduced a bill to facilitate the operation of “gold banks” such as UPMA. The bill didn’t advance this session, but Ivory set the stage to push the issue further next year. Ideally, Utah will pass this bill next session and other states will follow suit.

The explosion in efforts to encourage sound money in the states goes beyond mere monetary policy and finances. It’s more broadly about liberty. During an event after his Senate committee testimony in Arizona, Ron Paul pointed out that it’s really about the size and scope of government.

“If you’re for less government, you want sound money. The people who want big government, they don’t want sound money. They want to deceive you and commit fraud. They want to print the money. They want a monopoly. They want to get you conditioned, as our schools have conditioned us, to the point where deficits don’t matter.”

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.