MONTGOMERY, Ala. (Jan. 6, 2025) – Last week, a law repealing the capital gains tax on the sale of gold and silver went into effect. The new law removes a barrier to using gold and silver as money.
Sen. Tim Melson sponsored Senate Bill 297 (SB297). Alabama repealed the state sales tax on gold, silver, platinum, and palladium bullion in 2018 and extended the exemption in 2023. The enactment of SB297 takes another step by effectively repealing the state capital gains tax on the exchange of gold and silver.
Under the new law, individuals selling gold or silver bullion, or utilizing gold and silver in a transaction, can deduct any net capital gain derived from the exchange from their income for state income tax purposes.
The Senate passed SB297 by a vote of 34-0. The House approved the measure 100-1. With Gov. Ivey’s signature, the law went into effect on Jan. 1, 2025.
IMPACT
Taxes on precious metal bullion erect barriers to using gold and silver as money by raising transaction costs.
As mentioned, Alabama is already one of 45 states that do not levy sales tax on gold and silver bullion. Exempting the sale of bullion from capital gains taxes takes another 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.
Imagine if the IRS sent you a bill every time the dollar strengthened against the euro. That’s effectively what capital gains taxes on gold and silver do. As the precious metals prices go up due to the devaluation of the dollar, the government levies a tax on you. It is essentially a tax on the superior performance of gold and silver as 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 Ron Paul said during testimony in support of an Arizona bill that repealed capital gains taxes on gold and silver in that state.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.
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 Alabama 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 paper 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.
State bills that facilitate and encourage the use of sound money create a playing field where people can push back against the Fed’s monetary malfeasance. Ultimately, it could create a scenario where people can drive out the “bad” fiat money with “good” sound money.
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