Congressman Ron Paul [R-TX] is seeking to end all taxes charged by federal, state and local governments on coins and bullion.
Rep. Paul introduced the Free Competition in Currency Act of 2011, H.R. 1098, in the United States House of Representatives on March 15, 2011.
The move to end the taxation is one of three parts to the bill and marks a continuation of an effort by Paul that can be traced back to previous Congressional sessions. Those attempts stalled, leaving Ron Paul little choice but to re-introduce the measures in the latest session of Congress.
If passed, the Free Competition in Currency Act would eliminate capital gains taxes on gold and silver coins which are levied at rates of up to 35% for short term and 28% for long-term. Also eliminated would be sales taxes charged by state and local governments on coin and bullion transactions.
A second change sought in H.R. 1098 would repeal legal tender laws which Congressman Paul believes to be unconstitutional. These laws dictate that the currency produced by the United States government must be accepted for most kinds of monetary transactions. A repeal would mean that other mediums could be used in place of the currency such as gold or silver.
"We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender," explained Rep. Ron Paul in his in remarks introducing the Free Competition in Currency Act of 2011. "Yet, there is a section of U.S. Code, 31 U.S.C. 5103, that purports to establish U.S. coins and currency, including Federal Reserve notes, as legal tender."
Finally, the new law would end a prohibition on the operation of private mints and stop current legal proceedings against them. Additionally, any previous convictions suffered as a result of the prohibition would be deemed null and void.
"One private enterprise which attempted to popularize the use of precious metal coins was Liberty Services, the creators of the Liberty Dollar," stated Ron Paul. "Evidently the government felt threatened, as Liberty Dollars had all their precious metal coins seized by the FBI and Secret Service in November of 2007. Of course, not all of these coins were owned by Liberty Services, as many were held in trust as backing for silver and gold certificates which Liberty Services issued. None of this matters, of course, to the government, who hates to see any competition."
The three-pronged approach undertaken in the bill seeks to establish a "competing currency" system in which parties would be allowed to conduct their transactions in whatever system of currency they felt appropriate. This could, in the end, stop the government from printing more money at will and ultimately result in a more stable economy, at least according to Paul.
"The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the U.S. government to regain control of the dollar and halt its downward spiral," Rep. Ron Paul said in his final remarks while introducing the bill.
For the Free Competition in Currency Act of 2011 to become law, it must be passed in the House and Senate and get signed by the President.
For reference, the following is the speech by Rep. Ron Paul which introduced the legislation.
HON. RON PAUL
IN THE HOUSE OF REPRESENTATIVES
TUESDAY, MARCH 15, 2011
- Mr. PAUL. Mr. Speaker, I rise to introduce the Free Competition in Currency Act. Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.
- This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for everyday transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.
- Over millennia of human history, gold and silver have been the two metals that have most often satisfied these conditions, survived the market process, and gained the trust of billions of people. Gold and silver are difficult to counterfeit, a property which ensures they will always be accepted in commerce. It is precisely for this reason that gold and silver are anathema to governments. A supply of gold and silver that is limited in supply by nature cannot be inflated, and thus serves as a check on the growth of government. Without the ability to inflate the currency, governments find themselves constrained in their actions, unable to carry on wars of aggression or to appease their overtaxed citizens with bread and circuses.
- At this country’s founding, there was no government controlled national currency. While the Constitution established the congressional power of minting coins, it was not until 1792 that the U.S. Mint was formally established. In the meantime, Americans made do with foreign silver and gold coins. Even after the Mint’s operations got underway, foreign coins continued to circulate within the United States, and did so for several decades.
- On the desk in my office I have a sign that says: "Don’t steal–the government hates competition." Indeed, any power a government arrogates to itself, it is loathe to give back to the people. Just as we have gone from a constitutionally-instituted national defense consisting of a limited army and navy bolstered by militias and letters of marque and reprisal, we have moved from a system of competing currencies to a government-instituted banking cartel that monopolizes the issuance of currency. In order to introduce a system of competing currencies, there are three steps that must be taken to produce a legal climate favorable to competition.
- The first step consists of eliminating legal tender laws. Article I Section 10 of the Constitution forbids the States from making anything but gold and silver a legal tender in payment of debts. States are not required to enact legal tender laws, but should they choose to, the only acceptable legal tender is gold and silver, the two precious metals that individuals throughout history and across cultures have used as currency. However, there is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of U.S. Code, 31 U.S.C. 5103, that purports to establish U.S. coins and currency, including Federal Reserve notes, as legal tender.
- Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency. Gresham’s Law describes this phenomenon, which can be summed up in one phrase: bad money drives out good money. An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king’s gold could now be minted into two coins instead of one, so the king now had twice as much "money" to spend on building castles and raising armies. As these legally overvalued coins circulated, the coins containing the full ounce of gold would be pulled out of circulation and hoarded. We saw this same phenomenon happen in the mid-1960s when the U.S. government began to mint subsidiary coinage out of copper and nickel rather than silver. The copper and nickel coins were legally overvalued, the silver coins undervalued in relation, and silver coins vanished from circulation.
- These actions also give rise to the most pernicious effects of inflation. Most of the merchants and peasants who received this devalued currency felt the full effects of inflation, the rise in prices and the lowered standard of living, before they received any of the new currency. By the time they received the new currency, prices had long since doubled, and the new currency they received would give them no benefit.
- In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society. Merchants would have been free to reject the king’s coin and accept only coins containing full metal weight.
- The second step to reestablishing competing currencies is to eliminate laws that prohibit the operation of private mints. One private enterprise which attempted to popularize the use of precious metal coins was Liberty Services, the creators of the Liberty Dollar. Evidently the government felt threatened, as Liberty Dollars had all their precious metal coins seized by the FBI and Secret Service in November of 2007. Of course, not all of these coins were owned by Liberty Services, as many were held in trust as backing for silver and gold certificates which Liberty Services issued. None of this matters, of course, to the government, who hates to see any competition.
- The sections of U.S. Code which Liberty Services is accused of violating are erroneously considered to be anti-counterfeiting statutes, when in fact their purpose was to shut down private mints that had been operating in California. California was awash in gold in the aftermath of the 1849 gold rush, yet had no U.S. Mint to mint coinage. There was not enough foreign coinage circulating in California either, so private mints stepped into the breech to provide their own coins. As was to become the case in other industries during the Progressive era, the private mints were eventually accused of circulating debased (substandard) coinage, and with the supposed aim of providing government-sanctioned regulation and a government guarantee of purity, the 1864 Coinage Act was passed, which banned private mints from producing their own coins for circulation as currency.
- The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.
- Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4 percent per year. Sales taxes in many states can take away 8 percent or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver.
- In conclusion, Mr. Speaker, allowing for competing currencies will allow market participants to choose a currency that suits their needs, rather than the needs of the government. The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the U.S. government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government’s ability and incentive to inflate the currency, and keep us from launching unconstitutional wars that burden our economy to excess. With a sound currency, everyone is better off, not just those who control the monetary system. I urge my colleagues to consider the redevelopment of a system of competing currencies and cosponsor the Free Competition in Currency Act.
I’d like to see this happen.
(the following is somewhat tongue-in-cheek)
I wonder how would this affect housing? I’ve never been too keen on my town telling me that the house I own and have no plans on selling is suddenly worth more money making them thus able to increase the amount of money they squeeze from me. Would this bill make housing a competing currency as well?
Actually if this bill makes electronic dollars compete with the physical ones, I would be most pleased. How many more e-dollars are out there versus physical ones and how have they contributed to inflation over the years?
That pack of gum? 99¢ cash or $10 by credit, debit, or check 🙂
Vachon, You rent your house – you don’t own it. What you are seemingly talking about is implementing Proposition 13. It sounds like a good idea, but it’s been implemented in California. Today, if I purchase a house for $600,000 which is identical to a house that was also built in 1960 and purchased for $30,000 – I pay about $7,000 a year in property taxes, but the people that bought the $30,000 house pay $800 a year. This is why this state sucks now. To make things worse, the people that bought their house for $30,000 sell it to… Read more »
In the case of parents deliberately underselling their house to their kids (or anyone for that matter), I would fully support allowing the state/county to challenge that sale and subject the property to third-party valuation. Once the property changes hands, even if it wasn’t a sale (like an inheritance), it ought to be revaluated to reflect current market prices. The benefit of staying-put should be just that, not an in perpetuity thing. As for e-dollars versus physical ones. The M2 money supply is almost 10x greater than the M1 supply (which even that is probably a lot of e-dollars), yet… Read more »
Two points: A dollar in the United States is a Spanish Milled dollar coin, or its equivalent, in coin form, containing 371.25 grains of fine silver. This is shown in the work, “What is the Dollar in the United States” (online), by Dan Goodman. The dollar was established by the Continental Congress before the adoption of the Constitution. The United States Congress established a mint to coin the dollar. This was done because Spain had depreciated its dollar coin five percent. See Hamilton’s Report on the establishing of a mint (January 28, 1791). The United States cannot make its obligations… Read more »