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Think before you try to spend gold

The headline effort to recognize gold and silver coins as an alternative currency to the U.S. dollar has moved on to South Carolina.

An online AP report yesterday said South Carolina’s House Judiciary Committee passed a bill that would open the door to using gold and silver coins to make payments.

However, there is always a hitch in these bills.

Two are immediately apparent.

Individuals trying to use gold and silver coins to make payment can only do so if the business they are trying to pay agrees to it.

While we all know there are some restrictions on cash use, such as when some businesses refuse $100 bills, real money is not something that you have to negotiate every time you use it.

The South Carolina legislation also exempts the coins from state sales tax, but apparently does not exempt them from capital gains taxes, which is a tax that one pays when the value one receives from something exceeds the price paid.

As a consequence, individuals who find a business to deal with using gold and silver coins will find that they will trigger a tax event if they receive value that exceeds their cost.

A person spending a one-ounce gold American Eagle that he paid $1,300 for and then spends at a $1,650 value, would owe taxes on the $350 profit.

That is a paper work nightmare if you add this burden to daily financial record keeping.

As a symbolic gesture of disapproval of the actions of the Federal Reserve board of governors, the legislation has value. As a practical alternative to using the U.S. dollar, not so much.