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Capital Gains Tax
(Precious Metals and Stones, Stamps, and Coins)
Gold, silver, gems, stamps, coins, etc., are capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or exchange generally is a capital gain or loss. If you are a dealer, the amount received from the sale is ordinary business income.
The question arises that if US gold and silver legal tender coins are subject to a capital gains tax because its market value (denominated in US Dollars) has increased, why is it the loss in purchasing power of fiat US dollars against the coins not subject to a capital Loss?
Besides the market price, the purchasing power of both legal currencies can be valuated against inflation as measured by the Consumer Price Index (CPI) at any fixed point in time. If a hundred dollar bill loses purchasing power, it is no less a real loss than if it was used to purchase any other asset that failed to keep up with inflation. Again, why is it that this loss in purchasing power not a legitimate tax deduction?
“Coin” EXAMPLE: A $50 AGE purchased for $300, then sold 20 years later for $400 is not a real capital gain although nominal gain of $100 is subject to tax when in fact the $400 adjusted for inflation is less than the purchasing power of the $300 at the time of purchase.
The Minneapolis Federal Reserve Bank Inflation Calculator demonstrates how the same goods and services purchased with a $100.00 bill in 2006 would have cost only $19.16 in 1970 - an 80% loss in purchasing power.
“Stock” EXAMPLE: Boeing Aircraft (BA) common stock sold at an average price of $18.74 in 1970. On June 22, 2006, "BA" closed at $84.06 per share. If sold at the recent price, 1000 shares would have a nominal value of $84,060.00 producing a gross profit of $65,320.00 subject to capital gains tax. Using the Inflation Calculator BA would have to sell at $97.81 per share just to maintain purchasing power against the depreciated US dollar. In inflation adjusted terms, this transaction results in a real loss of $13,750.00.
The above examples expose the tax and welfare confusion or fraud created by denominating income tax liabilities in a depreciating currency. Capital gains on assets nominally inflated by a depreciating currency should not be taxed because in terms of purchasing power wealth is diminished not increased; unless, a real gain is realized after adjustment for inflation. |
