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As central economic planners at the Federal Reserve continue their vision of “prosperity” through crushing debt and dollar devaluation, some states are fighting back. The Arizona House took a major step toward sound money by passing a bill to eliminate penalties in the form of taxes on gold and silver specie.

The move would be an important step toward currency competition and help undermine the Fed’s monopoly on money.

“Rep. Mark Finchem (R-Tucson) introduced House Bill 2014 (HB2014) on Jan. 9. The legislation would eliminate state capital gains taxes on income “derived from the exchange of one kind of legal tender for another kind of legal tender.” The bill defines legal tender as “a medium of exchange, including specie, that is authorized by the United States Constitution or Congress for the payment of debts, public charges, taxes and dues.” “Specie” means coins having precious metal content.

In effect, passage of the bill would “legalize the Constitution” by treating gold and silver specie as money.

HB2014 passed the full House by a 35-24 vote.”

Capital gains tax on gold and silver is an insidious disincentive based on intentional dollar devaluation. When the dollar’s purchasing power goes down, the metals’ nominal dollar value goes up, triggering a “gain” which is taxed.

The U.S. Mint is charged with protecting the value of money, but the Federal Reserve creates nothing but debt. Yet Congress authorized a tax when making the exchange of precious metals for dollars. It’s illegal and they know it, this bill is an effort by one state to protect the people from such confiscation,” said Representative Finchem.

The Arizona bill would allow people to “deduct the amount of any net capital gain derived from the exchange of one kind of legal tender for another kind of legal tender or specie (gold and silver coins) from their gross income on their state income tax.” The bill now moves to the Senate for consideration.

Finchem argues that any perceived capital gain from gold and silver is not actually a gain, but a protection against losing money in the inflationary federal reserve system.

“Finchem’s 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 — the bills we carry in our wallets — actually lose value.

“Let’s 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,” he explained.

From Finchem’s perspective — and that of House members who gave his measure preliminary approval this past week — selling that coin for $100 more is not a profit.

“You’ve actually experienced a loss,” he said.

It’s called inflation,” Finchem continued. “The Internal Revenue Service for many, many years has been taxing inflation as though it was a gain.

If more states can manage to remove punishments such as unjust taxation on gold and silver “gains,” currency competition could return, bringing us toward sound money and away from fiat currency that brings unchecked debt and contributes to financial disasters.

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This isn’t going to end the fed’s monetary monopoly overnight, but it sets the foundation and opens the door for more market activity by the people,said Michael Boldin of the Tenth Amendment Center. “This is an important part of the overall strategy, and activists in Arizona should continue working to get both bills passed.

Forces at the state and federal level will be working to kill the Arizona bill in order to preserve the Fed’s monopoly on money and the influx of unjust taxes into state coffers. Opponents of the bill are fear-mongering about money traders coming into Arizona and making “a lot of money” without giving their “fair share” in taxes to the state. In 2013, then-governor Jan Brewer vetoed a similar bill on such grounds.

Other states have staked their position too. Utah and Oklahoma have declared gold and silver legal tender in their state, free from any taxation. Such moves are critical in dispensing with the idea that gold and silver are merely investments and speculation.

Several other rules exist around the country that provide further disincentive for sound money through specie. As the Tenth Amendment Center points out, dealers who buy gold and silver from the public are required to collect personal information from sellers and upload this information daily into law enforcement databases. Some dealers are barred from selling gold and silver to anyone for seven days, forcing them to tie up large amounts of capital and absorb market risk.

Such rules rig the system in favor of the Fed’s monopoly on money and create the perception that gold and silver are nothing more than commodity investments.

According to William Greene, professor of economics at New York University:

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.

Oh, but they do matter Mr. Greenspan....they most certainly do.