Gold standard? No, but look closer

This article was originally printed in Numismatic News.
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One news service said Utah took the first step to restoring the gold standard when its House of Representatives passed a bill on March 4.

Intrigued?

I certainly was. With gold soaring, many pundits are saying the dollar is on the way out and gold is on the way in.

Naturally, I was excited to find out what was going on in Utah.

To say I was disappointed in what I found is an understatement. The bill has less to do with the gold standard and more to do with tax policy – but that part of it is the silver lining.

What the bill proposes is that “gold and silver coins issued and deemed legal tender by the federal government to be legal tender in the state.”

This is a statement of the obvious. They already are legal tender. The state doesn’t have to pass a new law to declare it so. It is like mandating calling the first day of the week Sunday, or the seventh month of the year July.

Use of the phrase “deemed legal tender by the federal government” also means that if the federal government decides to recall all gold again, which is what gold bugs fear, it can simply announce revocation of the legal tender status currently enjoyed by current U.S. bullion coins and pre-1934 U.S. gold coinage and this bill declares in advance, “yes, we agree.”

As an alternative to the U.S. dollar, this isn’t it.

Another section of the bill says the state will “study the possibility of establishing an alternative form of legal tender ... within the state.”

They can study the issue all they want, but if they come up with the same language of what is acceptable to the federal government, game, set and match go to the U.S. dollar.

The silver lining in this bill is it is actually a tax relief bill for investors in gold and silver. Capital gains taxes that would apply to someone who bought gold at, say $800 an ounce, and sold it for $1,400 would not owe any state taxes on the gain as long as the form in which he held it was coins minted by the good old U.S. of A.

Neither would a current buyer of gold or silver U.S. coins have to pay state sales or use tax on the purchase.

The language in the explanatory section reads that the exchange of gold and silver coins for another form of legal tender does not create any individual income or sales tax liability.

Now if the state Senate and the governor concurs with this Utah House bill, it would be a victory for any gold and silver investor who has made tremendous profits over the past decade – as long as he wasn’t buying bullion bars or foreign coins. Sorry Maple, Leaf, Krugerrand and the rest.

That’s not a bad goal. And as the Industry Council for Tangible Assets might tell you, exempting bullion investment gains from taxation in this fashion sure beats calling the bill a straightforward exemption. In this tax climate, anything that is called a tax exemption is not likely to pass.