A new study from the University of Georgia claims that getting rid of cash could ultimately benefit the average US family, but only if a certain change is made alongside it: lowered taxes. Though some experts have predicted that society will eventually get rid of fiat currency, the idea is controversial — physical cash, after all, is completely anonymous and private, unlike digital transactions.
The anonymous nature of cash makes it a double-edged sword: it offers privacy you can’t get with digital currency (some cryptocurrencies aside), but with the downside that it makes illegal activities and tax evasion easier. Someone may, for example, fail to report their cash tips when it comes time to pay taxes.
These so-called ‘hidden dollars’ mean the government loses out on some tax revenue — and that’s where the potential benefit of a cashless society resides, the study claims. By getting rid of cash and therefore underreporting one’s taxes, the government could increase tax revenue. That alone wouldn’t benefit the average family, the study found, but a resulting change could.
The researchers say their model-based study found that overall production under a cashless system would decrease as consumers who fail to report cash would see their tax rate increase. However, a decrease in income tax rates made possible by eliminating cash may, the researchers say, may make the average American family better off than they were before.
In talking about the results, study co-author William D. Lastrapes explained:
My co-authors and I will be the first to admit that our paper does not provide the final word on cash-suppression policies and that more research is needed to be confident in what should be done. But our view is that models like ours that account for many of the unintended consequences of such policies and that carefully measure overall costs and benefits are essential for determining the right path.