Yesterday, Louisiana Gov. John Bel Edwards signed a bill into law that exempts the sale and purchase of gold and silver from state sales and use taxes, encouraging their use and taking the first step toward breaking the Federal Reserve’s monopoly on money.
Rep. Stephen Dwight (R) and Rep. Mark Abraham (R) introduced House Bill 396 (HB396) on March 31. The legislation exempts the sale of platinum, gold, or silver bullion, ingots, or coins that are valued only on their precious metal content from the state sales tax. It also exempts certain numismatic (collectable) coins.
The House initially passed HB396 95-0 on May 24. The Senate followed up on June 2 and approved the measure by a vote of 30-2 with some technical amendments. The House then concurred with the Senate amendments by a vote of 103-0. With Gov. John Bel Edwards’ signature, the new law went into immediate effect on June 22.
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 Louisiana’s sales tax on gold and silver did. By removing the sales tax on the exchange of gold and silver, Louisiana will now 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.
Practically speaking, eliminating taxes on the sale of gold and silver will crack open the door for people to begin using it in regular business transactions.This marks an important small step toward currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, the people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency.
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.” States have simply ignored this constitutional provision for years. It’s impossible for states to return to a constitutional sound money system when it taxes gold and silver as a commodity.
This Louisiana bill takes a step toward that constitutional requirement, ignored for decades in every state. Such a tactic sets the stage to undermine the monopoly of the Federal Reserve by introducing competition into the monetary system.
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.