Countdown: There are 166 days to the 2013 municipal elections, 249 days until the start of the 2014 Legislature, 525 days until the 2014 midterm elections and 962 days until the 2016 Iowa Caucuses.
An analysis says expanding Medicaid coverage will save Utah more than $130 million and would give health insurance to 123,000 residents [
Tribune].
A new report ranks Utah #1 for economic outlook next year [
Utah Policy,
Tribune].
House Majority Leader Brad Dee goes on a European vacation with three lobbyists, but Dee insists the trip was above board because everybody paid their own way and they didn’t discuss politics [
Tribune].
Former Attorney General Mark Shurtleff is caught on tape offering to get $2 million for Utah Businessman Darl McBride if he would shut down a website critical of another Utah businessman. That money was to come from a third Utah businessman who was in trouble with the Attorney General’s office [
Tribune].
Former Legislator and current blogger Holly Richardson
says she’s had enough with the “culture of corruption” permeating the Attorney General’s office [
Holly on the Hill].
Sen. Orrin Hatch wants to hear from Utahns who think they have been inappropriately targeted by the IRS as part of his investigation into misconduct by the agency [
Tribune].
Kennecott lays off 100 workers because of the massive landslide at their Bingham Canyon Mine [
Tribune,
Deseret News].
The Boy Scouts vote to allow gay members in their ranks [
Deseret News].
Former Utah Gov. Jon Huntsman launches a new political action committee to support Republicans who share his point of view [
Tribune].
Gov. Gary Herbert says he is confident the state can work out a deal to avoid taxing the electricity used by the new National Security Agency data center at Camp Williams [
Tribune].
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It was kind of funny when the Utah Legislature passed a law making gold and silver legal tender and exempting the metals from state capital gains taxes. (http://bit.ly/l3KB17) Now that Senator Mike Lee has jumped on the bandwagon and suggested that gold and silver should be treated as currencies and exempted from federal capital gains taxes, we have to stop giggling and talk about why this is a serious issue – and a seriously misguided idea. (http://bit.ly/kkSho5)
First, while it’s a nice sound bite to say that the U.S. dollar has lost 98% of its value since the Federal Reserve was created in 1913, the implied causal relationship is silly. U.S. inflation from 1913 to 2010 is a fairly staggering 2,182% but it’s a safe bet that inflation over those 87 years hasn’t been caused by the Fed. It’s worth noting that in 1913 – Senator Lee’s year of choice probably because it is the year the Federal Government started maintaining inflation data – gold cost $20.67 per ounce. It is currently worth about $1,500 per ounce. Using the same 1913-2010 rate of inflation, gold should cost about $472 per ounce today. Thus, gold’s price has inflated far more significantly over the same period than the U.S. dollar.
Second, gold’s price is, of course, market driven. That market is driven by supply and demand coming from governments, investors, speculators and a host of market players. Gold is worth what the market says it is worth simply because the market says so. There is no intrinsic value in gold that says it will retain value or deserves to be a certain value.
Gold prices, of course, fluctuate – up and down. Gold is no more of a one-way street to profit than the misguided notion that housing prices could only go up. In fact, in 1980, gold traded at over $612 per ounce before dropping back to $272 per ounce in 2001 – a fairly staggering 55% loss of value. Of course, that also means that gold is up approximately 450% from 2001 to 2011. We dare say, though in something of a death spiral, the dollar’s value has not eroded nearly as fast as gold prices have risen in the past decade.
Third, the message of treating gold (and silver) like currencies and exempting them from capital gains taxes is a bit of a misnomer. (We assume that losses would similarly be exempt from tax benefit but Senator Lee hasn’t made that clear.) The simple fact is, when you buy and sell a dollar, there is no gain or loss. Leaving inflation aside, a dollar is worth a dollar. However, if you happen to like Euros, go buy some Euros with dollars and when you sell those Euros, you’ll have a gain or loss. There is no currency exemption from capital gains. If you invest your dollars in an interest bearing account at your bank, your dollars are on deposit and that interest is subject to ordinary income taxes. If you invest those dollars in U.S. Treasuries, any interest received will be taxed and any capital gains or losses will be recognized. There simply is no currency exemption from taxes as Senator Lee suggests for comparative purposes. The only way to avoid taxes on holding currency is to hold it in a non-income bearing or tax-exempt (e.g., municipal bonds) instrument. So why should gold be any different?
Fourth, who is this proposal intended to serve? And who, perhaps, might actually be ill-served by such a policy?
Once jewelry is eliminated, most gold is owned – directly or indirectly - by governments, central banks, investors and speculators. The first two don’t pay taxes. The third and fourth, therefore, are the beneficiaries of the exemption of gold (and silver) from capital gains taxes. How many middle class Americans own gold and would benefit from this favorable capital gains treatment? Exactly!
To put an even finer point on this, consider this. John Paulson, one of the world’s most successful hedge fund investors who made billions betting on the collapse of the housing market, now allows investors to buy his hedge funds in, you got it, gold! So the logic of this proposed capital gains exemption suggests that if you hold your “currency” in gold, and invest that gold in a Paulson hedge fund, and redeem it later also in gold, you would recognize no capital gain! We revert to the title of this entry – the rich get richer…
But who is most ill-served by this policy? Well that would be those very same middle class Americans who don’t own gold. And why are they ill-served? Well first, of course, they suffer the further erosion of the tax burden paid by the wealthiest Americans who now, along with historically low tax rates, will pay no capital gains taxes on their gold and silver holdings. And second, what Senators Lee, DeMint and Paul, and their kindred spirits, are really saying is that the dollar is in trouble and the world shouldn’t have much faith and credit in the United States Government’s ability to repay its debts and to honor the value of its currency. (Note Lee’s comment in the Tribune article: “he hopes will encourage a change in the nation’s monetary system.”)
It may well be that the era of the dollar as the reserve currency of the entire world is coming to an end but to suggest that the full faith and credit of the United States of America isn’t worth the paper it’s written on (cause hey, since Richard Nixon released us from the gold standard, that’s what backs the value of the dollar!), seems like a pretty big stretch.
Or maybe with that August 2nd debt ceiling deadline approaching, a U.S. debt default would allow Messrs. Lee, DeMint and Paul an “I told you so” moment at an untold cost to the U.S. taxpayers.
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