WHAT TAX BULLION?
June 21, 2007 - 9:00 pm
WASHINGTON — Since opening a bullion dealership in Las Vegas 47 years ago, Phil Carlino has seen plenty of people invest in gold and silver.
These investors, worried that the dollar will someday collapse, try to protect their equity by going into hard metals, Carlino said,
But apart from the doomsday crowd, precious metals have sparked growing interest among conventional traders.
Since 2004, investment vehicles known as exchange-traded funds have helped create a $14.6 billion gold trading industry, the World Gold Council reports. ETFs index commodities like gold and silver and are traded on stock markets.
As for silver, from 2003 to 2005, net investment grew from 15.4 million ounces to 77.2 million ounces. An ETF for silver introduced in April 2006 has attracted 137 million ounces of silver, the Silver Institute reports.
Regardless of their growing popularity, when it comes to the income tax on those precious metal investments, Carlino said bullion investors are treated unfairly.
The U.S. tax code classifies precious metal bullion as a collectible commodity, like fine wines and rare coins. So when it is sold, it is taxed at a 28 percent rate, which is too high in the buyers’ and dealers’ view.
"Our Congress talks to our nation continuously about saving," Carlino, 81, said. "Well, we don’t want to punish the people who are saving."
Congress is preparing to reopen a debate about the taxation of gold and silver, and other precious metals like palladium and platinum. Nevada lawmakers are behind bills that would reduce the tax rate on sales of precious metal bullion to 15 percent, the same capital gains rate applied on the sales of investments like stocks and mutual funds.
Reps. Shelley Berkley, D-Nev., and Jon Porter, R-Nev., plan to soon submit legislation to the House Ways and Means Committee. Sens. Harry Reid, D-Nev., and Mike Crapo, R-Idaho, recently introduced identical legislation, with Sen. John Ensign, R-Nev., as a co-sponsor.
The idea, Berkley said, is to spur more investment in precious metal bullion, such as standard 1 ounce Gold American Eagles made by the U.S. Mint.
"There are various investment opportunities, and I don’t think precious metal opportunities should be taxed higher than stocks and bonds," she said.
Porter said that the tax cuts would create a new investment opportunity, while spurring growth in mining, where Nevada gold production ranks fourth in the world behind Australia, South Africa and China.
"I think it’s going to help anyone who wants to find an alternative investment," Porter said.
John Dobra, a University of Nevada, Reno economics professor, said the effect on the precious metals industry would likely be minimal. Precious metal makes up only a fraction of individual investment portfolios in the United States, and more than 66 percent of gold is sold in Asian markets, he said.
Still, Dobra said, "If you spit in the ocean, the water level will surely raise."
The tax cuts would cost the U.S. Treasury $52 million over ten years. If Congress is serious about the benefit, it will have to find offsetting savings elsewhere.
Legislators have introduced similar bills since 2001. One passed the Senate in 2004 but none have reached final passage.
Michael Dirienzo, executive director of the Silver Institute, said the bills just haven’t gotten attention.
"It’s a matter of finding the right vehicle," Dirienzo said, adding it takes time to educate lawmakers about small anomalies in the tax code.
George Milling-Stanley, spokesman for the World Gold Council, said precious-metal bullion was placed in the collectibles category in a 1982 tax bill because it was an unpopular investment tool then.
In 1997, Congress changed the tax code again, allowing Individual Retirement Account investors to put their money into bullion, but at the higher collectible tax rate.
Bullion is far from a collector’s item, said Beth Deisher, editor in chief of the Ohio-based Coin World magazine.
Collector coins are usually subjective in value, bought and sold for their historical and aesthetic value, Deisher said. Bullion coins are valued by their weight and purity and are usually used for investments.
"In the last decade, more people are investing in precious metals and bullion coins, but they have done so at a disadvantage," Deisher said.