I commented that I thought real estate still has a ways to drop, but gold and silver still have significant up-side. I think we'll have some deflation, then ugly inflation. If we or Israel attack Iran, all of this uber-inflation will happen more quickly.
A commenter named Chris had a lengthy, well-thought-out comment about why he thought precious metals might not be such a good idea. In part, he said -
The thing is you will be taxed on that illusionary paper profit at the ugly collectibles rate of 28%. There will have to be some massive inflation to make up for that. So, after taxes, you will be able to buy a nice set of Italian Bermuda shorts.He's right. At a minimum, you are legally obliged to pay - at a minimum - income tax on your gain between your purchase price and sales price.
So, unless you have a really good accountant or are prepared to commit massive tax fraud, I just don't see PM's as a great place for wealth. As the .gov's cash flow picture gets worse, I don't think they will suddenly decide to treat PM's more favorably or reduce IRS audits.
He's also right in that, as things worsen, the government will pay more attention to precious metals transactions.
His comment got me thinking about barter and other supposed "shady deals" - transactions that happen off-the-books every single day which should technically have some sort of tax attached to them.
From what I understand (and this could be TOTALLY incorrect) if I trade the use of my lawnmower for two jars of peach jam, no tax is due. That is, UNLESS I am a professional lawn maintenance person, or a profession peach jam maker. Then, because my chosen, cash-earning profession is involved, taxes must be paid.
From what I have observed, no one ever pays taxes on any of these transactions. I don't prepare taxes for a living, but I'd be shocked if a guy with a lawn mowing business gives his CPA a list of bartered items each year.
The government knows this. I don't know if there will ever be a way to capture the taxes on these transactions unless they set up some sort of "sting" operation. Would they ever do that? I guess it depends on how desperate they get. It would be a helluva reason to make an asset seizure...
I can see them doing something about sites such as Craigslist. In their eyes, it must look like the equivalent of a site advertising free child porn, but for non-taxed products and services. They must be very angry.
Ironically, although CL is run by dyed-in-the-wool socialists, it is essentially engaged in promoting the exchange of goods and services where no tax is involved. How will the .gov's get their piece-of-the-pie?
If they can't figure that out, I'd guess they will shut it down under some, "Enemy of the state" law.
That brings us back to precious metals. As commenter Chris noted, lots of taxes will be due when your PMs are sold. I'm guessing that, like Craigslist or even barter transactions, people will (and do) consciously not pay taxes on their gains.
Unless there is a very conspicuous "paper trail" - buying or selling from an online source, or buying in-person with a debit or credit card - people see no reason to give up any of their gains to the government. When you sell your coins to a shop, the transaction is supposed to be recorded. It assumes that the name given to the store owner is your real name.
My guess is that the .gov will further clamp down on coin and jewelry shops over the next few years - just like they did with banks. While the justification will be "to fight terrorism," its actual goal will be to separate you from your money.
That will simply push people further and further into the Underground Economy. It'll be Craigslist On Steroids. It has happened every time in every country that raises taxes above some level of fiscal discomfort - I read 20% somewhere.
We're clearly above that threshold now, and it will be getting much worse in the months and years to come. The jobs the administration is helping to create are not the kind they had in mind!
Here in California, if you make a marginally-decent income, your income is already taxed about 60% (state and fed income tax). You then have property taxes, gas tax, sales tax, bridge tolls (which just increased 25% here in Nor Cal), communications taxes, tobacco taxes, alcohol taxes, power-supply taxes and water taxes to eat up your remaining dollars. If (when) a Value Added Tax (VAT) is put in place, we'll be paying taxes on our food as well.
Not much left after your income has been redistributed.
Accept The Challenge
It's gut-check time. Do you think you're over-taxed? If so, will you (or do you) willingly break our tax laws?
It is not such an easy question, especially when you've been raised as a law-abiding, follow-the-rules citizen. Everyone has to make their own choices, but it's really a black-or-white issue: You'll either follow our laws, or you won't. If we pick-and-choose the laws we want to follow, don't we have anarchy?
Or is there a morally justified "gray area" in all of this?
One of my favorite Ayn Rand quotes comes to mind -
"There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws."Kind of interesting. Today is Independence Day. Weren't taxes involved way-back-when....?
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