An attorney completed a last will & testament for a kindly old lady. She paid him with a crisp new $100 bill. After she left, the lawyer noticed there was another $100 bill stuck to the first. The counselor was in an ethical quandary – should he tell his partner? Undoubtedly that cash might never be reported to the IRS as income for tax purposes either.
Paying for and accepting cash as payment for goods and services is now a smaller part of our overall economy than ever in history but it still accounts for billions of dollars in transactions. Thanks to debit and credit cards, checks and e-checks, electronic and internet payments, and automatic deposits, we now just move numbers around between various accounts.
However, too many of the transactions, people and entities that operate principally on a cash basis are part of an unregulated, untaxed, underground economy that includes all types of criminal activities. If we really want to have complete transparency and honesty in our society and economy, we have to be able to follow all transfers of money, goods and services through objective financial accounts. Cash is the last bastion of secrecy and protection for criminal enterprises and legal businesses that do not wish to disclose their actual incomes.
On a date certain, we should simply outlaw the use of cash in the United States. All hard currency in paper and coins would have to be deposited in some regulated banking or financial institution before that date. That may shore up the balance sheets of some U.S. banks teetering on insolvency. All outstanding money not so deposited would be deemed worthless and no longer legal tender after that date. The U.S. Treasury could impose a one-time deposit fee based upon a percentage of the total in order to capture prior lost income taxes. That would provide one last safe-haven for these cash depositors who would not really want to explain the origins of the cash and would rather just pay the fee (tax) to put it all behind them.
Everyone would have to use checks, electronic transfers and debit and credit cards for every personal and business transaction. All vending machines would no longer accept cash. ATM machines would be used only for making deposits of checks and to verify account balances. Since other technologies can easily handle those transactions, ATM machines and their fees might just disappear. That could be the public’s revenge against all those greedy bankers.
Sole proprietors of businesses may have to purchase portable card readers to accept debit and credit card payments for the convenience of their customers. Any fears of non-payment would be eliminated by current technology immediately confirming a transfer was made between financial institutions. The readers can also read checks and run them through the appropriate banking institution that electronically uses the Federal Reserve check clearinghouse system.
The result of a cashless society would be to require every payment for goods and services to be recorded and traceable. It would put a massive impediment in the activities of many criminal enterprises that depend upon cash for their operations. Even legal businesses would no longer be able to hide income payments via cash. Money laundering schemes would be rendered far more difficult because there could no longer be unidentifiable cash deposits into legitimate businesses; Any transfer into a bank account would have to be traced to another.
Some illegal activities, such as prostitution services and marijuana sales, might have to be fully legalized, regulated and taxed. Perhaps private betting and gambling would also have to be accommodated and legalized. However purchases and sales of illegal drugs such as heroin and cocaine, or for other blatantly illegal activities such as political bribes may have to be reclassified by those involved. However, if every transaction were recorded by at least 2 financial institutions for governmental inspection and possible taxation at any time, a massive challenge would be presented to our large shadow and illegal economies. Bartering might be an alternative but few people have tasty farm produce with which to pay their attorneys and other creditors.
This change might require marriages to maintain far higher levels of honesty and disclosure between partners than ever before. Every financial transaction by each spouse would be readily ascertained when the statement is viewed online or after its receipt in the mail. Of course any married person even objecting to the elimination of cash might cause a spousal inquiry into the underlying motives behind such opposition. What to do with eBay and PayPal is another ancillary consideration. A person might send the statements of a secret account to a post office box but the government would still be able to find it even if a spouse might not.
Some illegal businesses may have to get creative on their descriptions of services and goods but eventually they will be found out since every transaction will be recorded by at least 2 financial institutions. Former NY Governor Spitzer paid for his prostitutes with wire transfers to the offshort account of the escort service. (Still his wife was oblivious to his activities.) It took unrelated criminal investigations on the legality of the underlying online escort service and a separate bank inquiry in his wire transfers. Prosecutors were forced to corner Mr. Spitzer with the obvious connections. He admitted he was a client of that escort service, much to the surprise and chagrin of his spouse. Perhaps if he had used cash, he might still be Governor.
In order to address our serious federal budget deficits, we will need to find many new activities to tax and better ways to trace the large underground economy so it also becomes fully taxable. The only way to solve both issues and eventually force everyone to be more honest and transparent about everything they buy, sell, and do, would be to eliminate cash completely from our economic system.
3/26/09 by Marc Pascal in Phoenix, AZ.