This recent BlawgConomics post linked to an AP article (no longer available) about a bill passed in Utah declaring gold and silver coins to be “currency.” That post left yours truly wondering if Utah had considered the United States Constitution and its exclusive grant of power to the Congress over currency. Which means it’s time for the inaugural edition of an irregularly recurring feature on BlawgConomics: “Can They Do That?”
These still work in Utah...how about pirate gold?Most of the media did a poor job covering the issue, with articles that got most of the facts right yet still managed to get the law wrong. But by taking a look at the actual legislation and the Constitution we can easily sort fact from popular fiction.
Let’s begin with the bare assertion that Utah “legalize[d] the use of gold and silver coins as currency.” Does this mean gold and silver pirate doubloons from the bottom of the ocean? Coin collectibles? Are these now the official currency of the state of Utah? Can they do that?
No, Utah cannot declare all gold and silver coins to be currency. In fact, it can’t declare anything to be currency. Let’s have a look at Article I, Section 8, clause 5, which give Congress the power “[t]o coin Money, regulate the Value thereof, and of foreign Coin[.]” States cannot declare coins to be legal tender, only Congress can do that.
Fortunately, Utah didn’t try to do that, so no court challenge will occur. Instead, as this story put it, Utah would only “recognize gold and silver coins issued by the federal government as legal currency.” Better, but the story continues: “the coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.”
So, according to Fox News, Utah is declaring an alternative currency to the U.S. dollar. Can they do that? Nope, the power to “coin money” includes the power to print paper currency. And coins printed by the U.S. Mint are not an “alternative” to “the current paper currency.” Pennies, nickels, dimes, quarters, half-dollars and those faux-gold dollars are all U.S. currency, not an “alternative” to it. Notwithstanding any language in the Utah bill, each state has already “recognized” coins issued by the federal government as currency by their ratification of the U.S. Constitution.
But limiting the currency “recognized” by Utah to the U.S. Mint isn’t enough. The U.S. Mint prints a lot of collectible or “noncirculating” coins. These include gold and silver coin collectibles sold directly to collectors and distributors without face value. These coins are “issued by the federal government,” so can Utah recognizes these as “legal currency”?
Still no. Only the federal government can decide which coins it issues will (or will not) be legal currency. When the U.S. Mint issues collectibles without face value, they are not legal tender and no U.S. state or territory may recognize them as currency.
But an examination of the bill as passed by Utah reveals that the original bill took an even narrower approach: “Gold and silver coin issued and deemed legal tender by the federal government is legal tender in the state. “ Unfortunately, that more defensible version was changed to be more opaque: “Gold and silver coin issued by the federal government is legal tender in the state. “ Can they do that? Well, no, because the power to recognize currency implies the power to revoke recognition, which Utah doesn’t have. But since Utah is essentially affirming federal power, this falls under the “no harm, no foul” rule of justiciability (aka “standing”). The omitted “and deemed legal tender” should be read into the statute by any federal judge as a saving construction.
So after all that, what does the bill really do? In terms of altering currency, nothing. But it does have some substance as a state tax deduction.
The bill provides a tax exemption for state capital gains tax on the value of the coins. Since the gold or silver American Eagle coins, which were issued as currency by the U.S. Mint, are each worth a multiple of their face value as gold and silver, the tax break is a windfall to collectors of those coins who sell them in Utah. Of course, sellers still have to pay federal capital gains tax, unless they spend the coins at face value.
So while most of the news media correctly reports that the bill is “mostly symbolic,” they neglect to mention that it is a mostly symbolic tax deduction, not a real recognition by Utah of some new currency. But not everyone got it wrong: the WSJ and the NYT each published at least one piece that got the story (mostly) right. Sometimes, media elite are elite for a reason.
Jeremiah Newhall is a graduate of The George Washington University Law School and will serve as a law clerk in Chicago. He can be reached via the miracle of email.