DES MOINES, Iowa (Feb. 5, 2024) – A bill introduced in the Iowa House would make gold and silver legal tender in the state. The passage of the legislation would set the stage to undermine the Federal Reserve’s monopoly on money.
Rep. Bill Gustoff and 11 cosponsors introduced House Bill 2229 (HF2229) on Jan. 31. Under the proposed law, gold and silver coins issued by the U.S. government would be legal tender in the state.
“Any person may use gold or silver coin, or both, as legal tender in a financial transaction to which that person is a party.”
The bill would require state-chartered banks and credit unions to accept deposits of gold and silver coins.
HF2229 includes a contract clause. “If a financial transaction by its terms requires that payment shall be made in gold or silver coin, the only allowable medium of exchange for payment of the transaction shall be gold or silver coin.” In practice, if parties voluntarily agree to be paid, or to pay, in gold and silver coin, the Iowa courts could not substitute any other thing, e.g. Federal Reserve Notes, as payment.
Passage into law would make Iowa the fifth state to recognize gold and silver as legal tender. Utah led the way, reestablishing constitutional money in 2011. Wyoming, Oklahoma, and Arkansas have since joined. Practically speaking, this would allow Iowans to use gold or silver coins as money rather than just as mere investment vehicles. In effect, it would put gold and silver on the same practical footing as Federal Reserve notes.
The effect has been most dramatic in Utah where the legal tender law opened the door for the development of a gold and silver market in the state. With some legal hurdles cleared away by the state, the United Precious Metal Association (UPMA) in partnership with Alpine Gold Exchange set up the state’s first “gold bank.” The Utah Specie Legal Tender Act has also led to the creation of Goldbacks, a local, voluntary medium of exchange. Goldbacks are notes made from fractions of an ounce of physical gold. The company created a process that turns pure gold into a spendable physical form for small transactions.
The bill also specifically excludes any legal tender transactions from state taxes.
“A transaction entered into by a person which involves the exchange of any gold or silver coin which is legal tender for some medium of exchange other than gold or silver coin which has been designated legal tender shall not be subject to any sales, excise, gross receipts, income, capital gains, or other form of tax or charge authorized under the laws of this state.”
Currently, Iowa levies capital gains taxes on the sale of gold and silver.
Repealing taxes on precious metal bullion takes a step toward treating gold and silver as money instead of commodities. Taxes on precious metal bullion erect barriers to using gold and silver as money by raising transaction costs. As Sound Money Defense League policy director Jp Cortez testified during a committee hearing on a similar bill in Wyoming in 2018, charging taxes on money itself is beyond the pale.
“In effect, states that collect taxes on purchases of precious metals are inherently saying gold and silver are not money at all.”
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. But that’s essentially what Iowa’s capital gains tax on gold and silver bullion does. By eliminating this tax on the exchange of gold and silver, Iowa would treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.
“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support of an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.
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.” Currently, all debts and taxes in Iowa are either paid with Federal Reserve Notes (dollars) which were 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.
The Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the U.S. government wouldn’t be able to maintain all of its unconstitutional wars and programs. The Federal Reserve is the engine that drives the most powerful government in the history of the world.
Repealing taxes on gold and silver also takes the first step in the process of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.
In a paper presented at the Mises Institute, 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.”
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.
At the time of this report, HF2229 had not been referred to a committee. Once it gets a committee assignment, it must get a hearing and pass by a majority vote before moving forward in the legislative process.
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