from Daniel J. Mitchell:
Politicians hate cash.
That may seem an odd assertion given that they love spending money (other people’s money, of course, as illustrated by this cartoon).
But what I’m talking about is the fact that politicians get upset when there’s not 100 percent compliance with tax laws.
They hate tax havens since the option of a fiscal refuge makes confiscatory taxation impractical.
They hate the underground economy because that means hard-to-tax economic activity.
And they hate cash because it gives consumers an anonymous payment mechanism.
Let’s explore the animosity to cash.
It’s basically because a cashless society is an easier-to-tax society, as expressed by an editorial from the U.K.-based Financial Times.
…unlike electronic money, it cannot be tracked. That means cash favours anonymous and often illicit activity; its abolition would make life easier for a government set on squeezing the informal economy out of existence. …Value added tax, for example, could be automatically levied. …Greece, in particular, could make lemonade out of lemons, using the current capital controls to push the country’s cash culture into new habits.
And some countries are actually moving in this direction.
J.D. Tuccille looks at this issue in an article for Reason.
Peter Bofinger of the German Council of Economic Experts…wants to abolish the use of cash… He frets that old-fashioned notes enable undeclared work and black markets, and stand in the way of central bank monetary policy. So rather than adjust policy to be more palatable to the public, he’d rather leave no shadows in which the public can hide from his preferred policies. The idea is to make all economic activity visible so that people have to submit to control. Denmark, which has the highest tax rates in Europe and a correspondingly booming shadow economy, is already moving in that direction. …the Danmarks Nationalbank will stop internal printing of banknotes and minting of coins in 2016. After all, why adjust tax and regulatory policy to be acceptable to constitutents when you can nag them and try to reinvent the idea of money instead?
By the way, some have proposed similar policies in the United States, starting with a ban on $100 bills.
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