Inflation and hidden gold taxation

JulieW · Apr 24, 2012

Another explanation of why fractional banking is the devil's work. Although this refers to the USA tax system, the principle is the same.
It points toward a very precise timing and strategy to exit this bull so that your assets are protected. This little article has made me realise that there is no such thing as 'profit' in this world. The game is too rigged by people who know exactly what they're doing. The only option it appears to me is to purchase real assets which are income producing and safe from destruction by the banking system. That leaves ...... ummmmmm.

http://danielamerman.com/articles/2012/GoldHisA.html
and
http://danielamerman.com/articles/2012/GoldHisB.html

The years from 1975 to 2006 are an example of gold acting as a perfect inflation hedge over a 31 year period. In 1975, the average price for gold was $161 an ounce (London market, per Kitco). By 2006 the average price had climbed to $604 an ounce, which on the surface looks to be a dazzling $443 per ounce profit, or a 275% return.

Until we adjust for what a US dollar was worth at the time - which by 2006 was only 27 cents, compared to what it would buy in 1975 (based on the Consumer Price Index). When we multiply our $604 price per ounce by 27% to account for the loss in purchasing power, we are back to $161 an ounce. Gold precisely maintained its value in inflation-adjusted terms, which is exactly what it is supposed to do over the long term.

However, it is crucial to take into account that the same government whose policies created the inflation, quite deliberately doesn't recognize inflation when it comes to paying taxes. The way that the government has set up the rules is that a dazzling $443 per ounce profit has been earned, and investors must pay the government its share of those (illusionary) profits.

Another issue is that banks and brokerage firms make their money off of your money, which is supposed to be supporting either the stock market, or available for borrowing by the government as well as banks and corporations. When too many people take their savings out of the "system" and buy gold instead, then bank and brokerage profits go down and there is a weakening of support for both government bonds and the stock market, which then potentially leads to lower bonuses for bankers and corporate executives.

The government is quite responsive when the profits of major campaign contributors and its own cost of borrowing are threatened, and in the United States, gold is therefore taxed at a punitive "collectibles" tax rate which is almost twice the normal long term capital gains tax rate of 15%, in order to discourage such "socially undesirable" investments that benefit no one but the saver.

When we take the $443 per ounce in illusionary profits that are the result of the inflation that occurred between 1975 and 2006, and we pay the government its punitive 28% tax rate on our attempt to preserve the value of our savings against that inflation which its policies created, then we must pay $124 per ounce in taxes. This leaves us with $480 per ounce after taxes. And when we adjust for the 73% destruction of the value of a dollar, the purchasing power of the gold we bought for $161 an ounce is down to $128 an ounce.
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There are more examples quote on the links.

The crux of the matter appears to be that, contrary to what I would have expected, and although gold is a perfect hedge against inflation, the ogre of government taxation on capital gains makes any asset class a losing proposition. (gold is used as the example, but it would also apply to shares, housing, etc) Suddenly I understand why the rich pay no tax. It is the only way to ensure they do not lose worth over time.

Dogmatix · Apr 25, 2012

It's the same with pay-rises.

Let's say you get a 3% payrise to match what the Govt claims is the rate of inflation (say 3%).

That's a 'pre-tax' payrise, in 'nominal' terms.

What you actually get is 3% minus tax - which well be less than the rate of inflation.

Same goes for any investment really if you get taxed through capital gains.

So if you hold gold for example, and it goes to $10,000oz, but that is merely matching inflation, your nominal, taxable, gain is going to be around $8,500 (assuming you bought at $1500oz), even though $10,000oz might be purchasing-power parity with today's $1500.

The trick I believe, is not to sell your gold for fiat. But if you want to be a speculator, there's your dilemma.

Guest · Apr 25, 2012

Your a star JulieW, you always post good stuff.

Yippe-Ki-Ya · Apr 25, 2012

I've said it many times and i'll say it again ...

CGT on gold/silver is nothing but pure THEFT!!

nonrecourse · Apr 25, 2012

Yep brilliant post again JulieW. That is why I shake my head at people who invest in property and can't help themselves from selling.

By selling the tax man steals their capital gains plus are then slugged with income tax as well because they no longer can offset their taxable income:lol:

The rich are rich precisely because they legally pay very little tax. Think and grow rich by deferring your tax liability indefinetly

Kind Regards
non recourse

Yippe-Ki-Ya · Apr 25, 2012

for as long as people continue voting for big government parties we will continue to be robbed by the state.

not a day longer...

savvie??

Guest · Apr 25, 2012

Would be nice to straight barter with pm's. They'll probably make that an offense you will be jailed for soon enough.

Dogmatix · Apr 25, 2012

geewiz said:

Would be nice to straight barter with pm's. They'll probably make that an offense you will be jailed for soon enough.
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Barter is fine, but you're expected to pay taxes in fiat based on the fiat value of the trades i believe.

wrcmad · Apr 25, 2012

hotel 46 said:

.......he was a fat boy, couldnt stand in the sun, would have to sit down to tie his shoelaces. he would even battle to roll over in bed, would never go down a ski slope or ride a push bike.so with all his finances his riches were far short of mine. rich to some is houses,other even 10 oz of predec or a bag of maize meal through winter. just depend where you fit in. just being comfortable is great.
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Mate, I couldn't agree more. I used to have a much higher paying job than I do now, but realised lifestyle was worth more. So moved up the coast and never looked back. Just give me a surfboard, a beach, and warm weather and I couldn't feel better.

projack · Apr 25, 2012

If you buy gold for retirement you do not have to worry much about CGT as an average person.

Selling $40,000 value gold a year for your lifestyle for example even if the original purchase price was only $10,000 means $30,000 "profit" and only half of that amount is counted as CGT and used as assessable income, and that is 15,000. With the new $18,200 tax fee limit from the 2012/2013 financial year (and will go up further) this is no problem and you do not have to pay any CGT.

nonrecourse · Apr 25, 2012

hotel 46 said:

^^^^ one shoe does not fit all. i am glad it works for you.

riches will be in your death and the tax on your deeds.

i did a job for a guy a while agom my mate said that guy is really very rich. he was quite in awe. i shocked him a bit though, told him i didnt think he was that rich, he was a fat boy, couldnt stand in the sun, would have to sit down to tie his shoelaces. he would even battle to roll over in bed, would never go down a ski slope or ride a push bike.so with all his finances his riches were far short of mine. rich to some is houses,other even 10 oz of predec or a bag of maize meal through winter. just depend where you fit in. just being comfortable is great.

if your comfortable with your properties enjoy. 90 % pf owners on this forum will sell in seven years according to statistics and as far as your statement about not selling, thats kicking the can down the road because sooner or later the ato will get his bite.
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I'm glad it works for me too

As I have said before, being rich does not make you happy it just gives you many more choices, some good, some not so good. What you do with those choices determines how life pans out.

There are a hell of a lot more poor fat people than fat rich people and I haven't met too many fat poor people who wouldn't like changing places with the few fat rich ones. That is why tattslotto is so popular with the poor

90% of property owners are average investors and average is bloody awful. My posts are about not working for money but rather making your assets work for you.

This thread speaks about how taxation and inflation controls most people's lives because they are fiscally ignorant.

Kind Regards
non recourse

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Inflation and hidden gold taxation

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