If your government created a gold coin (which they make legal tender) and the face value of the coin says $50, then if you pay your workers with this coin how much tax is due? Who cares you might ask. Well it’s an interesting account of incentives.
Why would a government issue a gold coin with a face value of $50 but a gold content value well above that amount? Simple. They want to profit by selling it at the market value of the gold, or in fact above the market value of the gold because once minted it is collectable and worth more. However they don’t want it to circulate as currency otherwise they would give it a higher face value. As detailed previously legal tender gold coins only circulate when face value exceeds gold value.
The tax dodge. Say the $50 coin has gold in it with a market value of $100. Now if you pay your workers $50, in gold coin, instead of say $100 in paper currency then they are liable for taxes on $50 not $100. After all it’s legal tender. And you can get more labour for the same cost because the workers now have a tax advantage. Cool!! It’s simply arbitraging.
The sting. Well governments don’t like people who are clever dicks. So they want Robert Kahre to go to jail becaue over six years he paid out $114 million in payroll using precisely this scheme.
Can the government have it both ways? Can a coin be legal tender, but at the same time be prohibited for paying debts? History suggests that when it comes to the law the government can ultimately do whatever the heck it pleases. However it should be fun to follow this case and see where it leads.