LINCOLN, Neb. (Aug. 22, 2024) – In a victory for sound money, grassroots activists in Nebraska helped kill a bill that would have reimposed a sales tax on the sale of gold and silver bullion.
Sen. Lou Linehan introduced Legislature Bill 1 (LB1) on July 25. The tax bill included provisions that would have repealed the state sales tax exemption on the sale of gold and silver bullion.
The bill was killed thanks to the efforts of Sen. Ben Hanson and grassroots pressure organized by the Sound Money Defense League.
Sound Money Defense League director Jp Cortez called the public backlash that helped kill the bill a “powerful display of grassroots pressure.”
“Nebraskans should not be taxed on purchases of constitutional money. This misguided effort to increase the tax base would harm residents of our state looking to protect their wealth with money that has preserved its value for thousands of years,” Hansen said.
Only five states still apply sales tax to gold and silver bullion.
Ironically, Nebraska recently repealed the capital gains tax on gold and silver bullion.
KNOCKING DOWN BARRIERS
Had LB1 been enacted, it would have been a big step back for sound money in the state.
When states tax gold and silver, they treat the precious metals as commodities instead of money. 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 Kentucky’s sales tax on gold and silver bullion did. By eliminating this tax on the exchange of gold and silver, New Jersey 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 Ron Paul said during testimony in support an Arizona bill that repealed capital gains taxes on gold and silver in that state.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 impact of enacting this legislation will go beyond mere tax policy. During an event after his Senate committee testimony, 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.”
Practically speaking, eliminating taxes on the sale of gold and silver cracks open the door for people to begin using specie in regular business transactions. This marks an important small step toward currency competition.
The effect has been most dramatic in Utah where the legal tender law repealed all taxes on gold and silver bullion, opening the door for the development of a gold and silver market in the state. With some legal and tax 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.
BACKGROUND
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 Nebraska 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.
Reimposing sales tax on gold and silver would have created a tax barrier hindering the use of gold and silver as money in Nebraska.
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.
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