PHOENIX β Arguing that federal policies have made paper money βvirtually worthless,β Arizona lawmakers are moving to allow residents to invest in gold coins and not have to pay state taxes on any profits they make when they sell them.
Legislation awaiting a final House vote would carve an exemption in existing laws that require people to report β and pay taxes β on capital gains. So, if you buy art, jewelry or an antique car for $10,000 and sell if for $12,000, you owe the state tax on that $2,000 profit.
But Rep. Mark Finchem, R-Oro Valley, argues thatβs not true if youβre buying U.S. gold coins. He said itβs simply exchanging one form of U.S. currency for another.
βIf you were to exchange four quarters for a dollar bill, thatβs not a taxable event,β Finchem explained during House debate last week on his HB 2014.
Nor was he dissuaded by Rep. Ken Clark, D-Phoenix, who said people buy gold coins in hopes of making a profit. Further, gold coins are not sold on face value but on the amount of gold in them and how much gold happens to be selling for in dollars.
For example, the U.S. Mint is marketing a βMercury dime,β a gold version of the 10-cent piece, complete with the words βone dimeβ on the back. But it takes 2,050 actual dimes to buy the tenth-of-an-ounce coin.
And the $50 American Eagle coin? The Mint was selling that Friday for $1,560 in uncirculated condition, though there were commercial dealers offering it for less than $1,400, albeit not βpackaged in a velvet, satin-lined presentation caseβ and βaccompanied by a certificate of authenticity.β
Finchemβs theory of economics and currency, however, is that people buy gold coins not to make money but to keep from losing it in what he says is a flawed federal reserve system where federal reserve notes β the bills we carry in our wallets β actually lose value.
βLetβs say it takes 1,200 of them to buy a U.S. Mint gold coin today, but tomorrow it takes 1,300 of those federal reserve notes,β he explained.
From Finchemβs perspective β and that of House members who gave his measure preliminary approval this past week β selling that coin for $100 more is not a profit.
βYouβve actually experienced a loss,β he said.
βItβs called inflation,β Finchem continued. βThe Internal Revenue Service for many, many years has been taxing inflation as though it was a gain.β
All that goes to Finchemβs belief that the American public has been fooled into believing that those greenbacks really are worth something.
βI would hope one day the U.S. Mint would wake up and see that they have essentially turned our paper money into something thatβs virtually worthless,β he said. βIn fact, since 1910 up to today, a dollar bill went from a dollar in value to less than three cents.β
All that, Finchem said, is linked to the increasing national debt.
βYes, we still exchange it,β he continued. βBut we pretend it actually has some kind of value.β
Economic theories or not, Clark was not convinced. He suggested already there are ways to protect people against pure inflation.
βYou can show inflation being 4 percent,β he said, making any gain above that pure profit. And then thereβs the possibility of mischief.
βMy fear is this: That some kind of money trader ... comes into the state of Arizona, is able to sell a lot of gold, make a lot more than inflation and not have to report that on their taxes,β he said. βThat could cost the state quite a lot of money.β
Clark isnβt the first one to consider such a possibility.
In 2013, then-Gov. Jan Brewer vetoed a similar bill over concerns that its language might exempt the state from collecting income taxes on such transactions.
βThis would result in lost revenue to the state, while giving businesses that buy and sell collectible coins or current originally authorized by Congress an unfair advantage,β she wrote at the time.
Similarly, Gov. Doug Ducey, in 2015 and again last year, said he feared the unintended consequences of such a change.
