Cashless Society
Would a Cashless Society Have Less Crime?
How paper money facilitates tax evasion and the black market.
By Katy Waldman|Posted Friday, March 9, 2012, at 11:39 AM
A cashless society could reduce crimes that depend on untraceable currency (and not just muggings).
By Andrey Armyagov/iStockphoto.
Like gasoline in a getaway car, cash fuels all kinds of black market activities. Drugs, blood diamonds, sex work—these and other illegal goods and services are often purchased with paper money, because it changes hands without leaving a trace. Would crime rates plummet if cash were banned?
Not very much. One of the key crimes associated with cash is tax evasion; whenever you peel off a wad of bills for the babysitter, there’s a decent chance she’s not reporting that income, or paying taxes on it. And some fraction of cash-only businesses—including restaurants, laundromats, and other institutions—succumb to the temptation to fudge their income records. In a 2011 study, University of Wisconsin-Madison professors Edgar L. Feige and Richard Cebula wrote that 18 to 19 percent of total reportable income is hidden from the IRS, which means that the country misses out on nearly $500 billion in tax revenues. The Justice Department estimated in 2008 that secret offshore bank accounts were responsible for about one-fifth of the tax gap, suggesting that the remaining 80 percent is attributable to unreported cash.
But how much cash goes unreported because it’s been used to purchase illegal goods and services? A study forthcoming in Crime Law and Social Change estimates that, given the amount of paper currency the country has issued, there is about $2,950 in cash circulating for every U.S. citizen. But the government can’t pinpoint the whereabouts of 85 percent of those bills. (Not only does the Federal Reserve keep track of how much cash it’s printed, but it also receives reports from the nation’s banks on how much they’re storing at a given time. Subtract the second number from
How paper money facilitates tax evasion and the black market.
By Katy Waldman|Posted Friday, March 9, 2012, at 11:39 AM
A cashless society could reduce crimes that depend on untraceable currency (and not just muggings).
By Andrey Armyagov/iStockphoto.
Like gasoline in a getaway car, cash fuels all kinds of black market activities. Drugs, blood diamonds, sex work—these and other illegal goods and services are often purchased with paper money, because it changes hands without leaving a trace. Would crime rates plummet if cash were banned?
Not very much. One of the key crimes associated with cash is tax evasion; whenever you peel off a wad of bills for the babysitter, there’s a decent chance she’s not reporting that income, or paying taxes on it. And some fraction of cash-only businesses—including restaurants, laundromats, and other institutions—succumb to the temptation to fudge their income records. In a 2011 study, University of Wisconsin-Madison professors Edgar L. Feige and Richard Cebula wrote that 18 to 19 percent of total reportable income is hidden from the IRS, which means that the country misses out on nearly $500 billion in tax revenues. The Justice Department estimated in 2008 that secret offshore bank accounts were responsible for about one-fifth of the tax gap, suggesting that the remaining 80 percent is attributable to unreported cash.
But how much cash goes unreported because it’s been used to purchase illegal goods and services? A study forthcoming in Crime Law and Social Change estimates that, given the amount of paper currency the country has issued, there is about $2,950 in cash circulating for every U.S. citizen. But the government can’t pinpoint the whereabouts of 85 percent of those bills. (Not only does the Federal Reserve keep track of how much cash it’s printed, but it also receives reports from the nation’s banks on how much they’re storing at a given time. Subtract the second number from