DaveIt's been brewing for some time.  About a dozens states are at some point in the process of adopting gold and silver coin as money.  South Carolina has made headlines and now Utah has added a positive wrinkle to the proposal.  Utah is proposing to forego states taxes on any capital gains realized from the sale of gold and silver coin.

In effect, you can pay certain state taxes with gold or silver coin.  With appropriate credit based on current spot prices or some formula that reflects fair market value, the state would convert your payment to dollars.  Presumably then, it would not tax the gain realized on paper when the transaction is made.

For those sitting on long-time stashes of gold and silver coins, this presents a real opportunity to cash in, at least partially, tax free.  Yes, there would still be the requirement to pay federal taxes on any gain realized.  But it's a start.

The popularity of the idea among states appears to be growing.  Some believe, once the states pass similar bills, Washington will have to take note.  Fed Chairman Ben Bernanke has commented that there is not enough gold to allow a return to the gold standard.  At current prices he is right.  But, if gold rises to some of the stratospheric levels some speak of, the possibility is there.  Certainly, if states pass such bills, this could be considered a partial return to a gold standard.  This alone could drive prices considerably higher.

Consider this!  The Federal Government allows citizens to pay taxes with gold and silver coin like the American Silver Eagle Coins or Gold Eagles.  In so doing, they forego federal income taxes on any gain realized.  I think a chain reaction could occur.

First, given the ability to pay taxes with gold or silver, while not paying state or federal income taxes on any gain realized, could result in a flood of gold and silver into the treasury.  That would leave citizens feeling somewhat flush with extra cash that they may decide to spend, giving the economy a little boost.

With taxes avoided - Legally! - citizens may also decide to pay down debt with the cash that was once set aside for taxes.  That never hurt an economy either.  

On the other side of the trade, Government could add to its gold holdings.  That would take some supply off the market and drive prices higher.  At some point, you have to figure the largest gold reserves in the world is going to play a role in settling some of our debts.  Higher gold prices can only make that more feasible.

Then, how popular do you think gold would become with investors, who can look forward and see a day when they can potentially take gold and silver coins to pay taxes.  Take for example, lump sums paid at retirement or severance payments made to entice early retirement.  If the tax liabilities due as a result, could be paid in gold or silver, where no state or federal tax is paid on the gain, that could effectively leave lump sum payments intact or at least partially so.  (Note:  This is not tax advice.  Only theory.  Please consult with a tax professional if and when the time comes) 

Now, let's use our imagination to carry this all one step further.  If tax is legally avoided on the gain from sale, what happens to metals in a precious metals IRA?  Could they be used to pay tax debt and given the same tax free consideration?

Frankly, I'm having a hard time finding a flaw in the whole idea.  How about you?

Meanwhile, let's not forget the relationship between inflation and gold, our enormous debt and the potential for the dollar to lose its reserve status.  All of this will contribute to gold supply and demand and the the gold price.

This will be an interesting development to keep tabs on.  To do so, visit LearCapital.com on a regular basis for breaking news, FREE Special Economic Reports and a variety of free services.  It's a good time to own gold and silver.