by Mike Maharrey
AUSTIN, Texas (Aug. 4, 2017) – Yesterday, the Texas House passed two pieces of legislation that would facilitate the use of gold and silver as money in the state. Final passage of the bill and amendment would open the door to currency competition in Texas, and serve to undermine the Federal Reserve’s unconstitutional monopoly on money.
If both houses pass HJR38, a state constitutional amendment authorizing the legislature to “exempt from ad valorem taxation precious metal held in the Texas Bullion Depository,” would be placed on the November ballot. Yesterday, the House approved the measure 125 to 14.
Passage of HB239 would put the constitutional amendment into effect, prohibiting ad valorem taxation on precious metals held in the depository.
Sec. 11.141. PRECIOUS METAL HELD IN TEXAS BULLION DEPOSITORY. Sec. 11.141. PRECIOUS METAL HELD IN TEXAS BULLION DEPOSITORY.
(a) For purposes of this section, “precious metal” has the meaning assigned by Section 2116.001, Government Code.
(b) A person is entitled to an exemption from taxation of the precious metal that the person owns and that is held in the Texas Bullion Depository established under Chapter 2116, Government Code, regardless of whether the precious metal is held or used by the person for the production of income.
(c) Notwithstanding Section 11.14(c), the governing body of a taxing unit may not provide for the taxation of precious metal exempted from taxation under Subsection (b).
Under Texas law, precious metal is defined as “metal, including gold, silver, platinum, palladium, and rhodium, that bears a high value-to-weight ratio relative to common industrial metals; and customarily is formed into bullion or specie.”
HB239 passed today by a 133-10 vote.
Final passage of HB239, along with approval of the amendment by Texas voters, would exempt precious metals in the Texas Bullion Depository from ad valorem taxes and would represent another step forward forward in facilitating sound money in the Lone Star State.
Gov. Greg Abbot signed a law creating a state gold bullion and precious metal depository in the summer of 2015. Since then, the state has moved forward in establishing the depository. In June, officials formally announced the private vendor that will run the facility.
Once operational, private individuals and entities will be able to purchase goods and services, using assets in the vault the same way they use cash today. Exemption from taxation of precious metals stored in the vault will further facilitate the use of stored bullion as money. This would incentivize the use the Texas Bullion Depository. If they then start allowing checks and debit cards to be used in conjunction with the bullion accounts – likely the next step – it would essentially create a specie- and bullion-based bank introducing currency competition with Federal Reserve notes.
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 taxes on gold and silver do. By removing the ad valorem tax on the exchange of gold and silver, Texas would treat precious metals in the depository 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 in the Senate Finance Committee earlier this year. “Paper is not money, it’s fraud,” he continued.
Constitutional tender expert Professor William Greene wrote a paper for the Mises Institute arguing that enough states start transacting business in sound money, 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.”
The Texas gold depository creates a mechanism to begin this process, and provides a blueprint for other states to follow.
HJR38 and HB239 will move to the Senate for further consideration.