Andover voters to decide on silver dollars as pay alternative for town employees
Robert Shapiro recalls holding discussions nine years ago with Mexican leaders, including a senator and a member of the nation’s central bank, on the merits of using silver as a currency instead of pesos.
“I found out that Mexico’s economy was the right size, and at the time they were the number one silver producers in the world, and [I] thought that they would set the silver standard,’’ Shapiro said. “I tried to convince them that it would be a great advantage.’’
But Shapiro was not in Mexico representing the United States. In fact, as a math teacher in Methuen at the time, he wasn’t representing anyone officially.
“I went on my own,’’ said the Andover resident, on what he called his two-month stint as a consultant economist. “I sent them a letter with this outlandish proposal and one senator sent me a reply. . . . I like to think outside the box.’’
Shapiro’s idea may not have taken hold in Mexico, but he hopes it does in Andover, where he will ask Town Meeting voters in April to authorize the town to give its employees and contractors the option of receiving part of their pay in $1 American Eagle Silver coins.
“It’s a roughly 4 to 5 percent boost in purchasing dollars,’’ Shapiro said. “The town of Andover stands to save about $1 million if roughly 250 employees participate.’’
In his petition, which received the minimum 10 signatures from registered voters to make it onto the Town Meeting warrant, Shapiro states that as of last month, the exchange rate for a $1 silver coin is $35. Employees who choose to receive part of their earnings in silver coins would realize savings by way of paying less taxes, he said.
An employee making $1,000 a week, for instance, may choose to receive half of those wages in silver coins: The town would pay $500 in paper dollars and $500 based on the exchange rate of the silver coins, Shapiro said. Based on the January exchange rate, $500 would be the equivalent of roughly 14 silver coins. So the employee would receive $514 ($500 in paper dollars and $14 in silver coins) in wages, instead of $1,000, thereby falling to a lower tax bracket and paying less in taxes, Shapiro said.
The tax savings also would apply to the town, as it would only have to withhold taxes on the face value - not the higher market value - of the coins, he said.
“There is another side, and the other side is that the 4 to 5 percent [in purchasing power] that the employee and the town would save is coming from Uncle Sam,’’ Shapiro said. “And so the IRS is going to take the fall for it, and they’re not going to be happy.’’
A Las Vegas construction business owner was sentenced to 15 years in federal prison in 2009 for tax fraud and evasion, which included a payroll scam in which he paid workers with silver and gold coins, allowed them to immediately trade them in for paper dollars, but only withheld taxes for the total face value of the coins, according to the IRS and several local news reports. Shapiro said his proposal is nothing like the Nevada case.
The Las Vegas business owner “was trying to defraud the government out of the money. That’s where he went wrong,’’ Shapiro said. “Tax evasion, that’s when you don’t report earnings. Tax avoidance is just like when you take a deduction on your house, you’re trying to avoid taxes, you’re trying to pay less taxes, and there’s nothing in the tax code that says that you have to arrange your income to increase how much you pay in taxes.’’
Robert Bliss, a spokesman for the state Department of Revenue, said the department would have no problem with the idea, “if it was acceptable through the employees, it has a real monetary value that people accept it, and it could be reported as income with the IRS.’’ Town Counsel Thomas Urbelis said he could not provide his opinion on the legality of the proposal because he had yet to read the details.
In a transaction involving gold or silver coins, excluding their fair market value from reported income is considered frivolous by the IRS, according to examples listed on its website. Several Appellate Court decisions have issued similar rulings, including a 1981 decision out of the US Tenth Circuit Court of Appeals in Denver, where it was determined that, although legal tender, silver coins have both face value and fair market value. The decision stated that “when a taxpayer bargains for and benefits from the higher market value of silver coins, he or she must include this amount in income.”
Still, ideas like Shapiro’s are gaining steam in several states due in part to US Representative Ron Paul, a Republican presidential candidate who is a longtime advocate for ending the Federal Reserve System and returning to a gold-or silver-based standard of currency, said Frank Talty, political science professor at University of Massachusetts Lowell.
Paul’s argument is that the hyperinflation of the dollar with no gold or silver standard “is all smoke and mirrors, like the king has no clothes, and eventually we’ll discover that the currency has no backing and it will lead to the destruction of world markets,’’ Talty said.
Shapiro’s proposal could be risky for employees and contractors because of fluctuating values for silver, or the potential that the IRS will seek to tax the coins’ fair market value, Talty said.
“It’s not a good idea. I don’t think you should tinker with the currency,’’ Talty said. “When the Federal Reserve reduces interest rates and injects more money into the economy, people don’t disapprove. But if you’re like Ron Paul, you think this system is [flawed].’’
Talty added that people such as Paul and Shapiro are bringing awareness to residents and initiating conversations.
Shapiro said Andover will likely have to partner with a bank or other financial institution if the proposal is passed. This could also give employees the option of avoiding service fees from coin dealers or banking institutions if they wanted to cash in the market value of the coins, he said.
The key to his proposal is that it is voluntary, so town officials may or may not choose to offer silver coins to employees, who are also not required to participate, he said.
“I need to do a lot of explaining [at Town Meeting] on why it’s a good idea,’’ he said. “It’d be a nice way to give a ‘thank you’ to the unions. They’ve agreed to pay cuts to balance the budget. . . . I think this would be a nice way to say, ‘We’re not in a position to give you more dollars, but here’s your purchasing power back.’ ’’