E-Money As Revenue Enhancer

The day is coming when there will be no need for the IRS. There will be less ability for terrorists and criminals to generate money through illicit transactions and then to launder their money. Actually, that day could be today, if we are bold enough as a society to make it happen.

First, we need to have a national sales tax replace the income tax. Sales taxes generate government revenue from consumption, not income. Regressive, you say? Taxes the poor for their purchases of food? Fine, we exempt things from sales tax all the time here in California for exactly that purpose; there’s no reason that can’t be done nationally.

Second, we need to embrace e-money, a society without currency. Debit cards and credit cards are convenient ways for consumers to spend money without carrying around large amounts of cash. They also leave electronic records of transactions and can be set up to automatically deduct taxes on all eligible transactions, so the government always gets its share.

Tax cheating will become difficult. I won’t say impossible, but more difficult than it is now.

Drug dealers and their ilk will need to find some medium of exchange for their illicit transactions other than money. I’m not saying they wouldn’t figure out a way to do it, but again, it would be much more difficult than it is now.

The money launderer fears leaving a paper trail of his activities. But e-money is, inherently, an electronic paper trail; it does not exist without a record of where it comes from or where it goes.

The IRS would be replaced by a national sales tax collection agency. There would not need to be an army of auditors, reviewers, examiners, and tax judges. There would need to be people who enforced the sales tax, and judges and prosecutors to handle tax matters. But it would be a lot less burdensome than it is now. (By the way, I’ve only ever had professional, friendly, and courteous interaction with people who have worked at the IRS.)

Some may say that a cashless society is one without money. Nonsense. I bought nearly $200 worth of gas and groceries this evening and didn’t handle any currency while doing it. I paid my mortgage today without handling a pen or paper. No one doubts that checks — which are not currency — nevertheless represent money.

Others may argue that without the option of engaging in cash transactions, their privacy rights will be curtailed. This is a more substantial argument than it might seem on its face — it’s not only drug dealers and their customers who have a desire to shield their transactions from governmental scrutiny. People sometimes buy embarrassing things (medications, sex toys, and so on) and they would surely prefer to not have to explain them later. Query if one has a legitimate privacy interest in being able to lie about donating to the church’s collection plate, however.

But on the whole, this seems an inevitable outcome to me. The income tax system is cumbersome and cash transactions create the ability to profitably engage in crime. A cashless, consumption-tax based economy would be substantially more efficient, and if done right could generate substantially more revenue, than where we’re at. And if done correctly, the vast bulk of people who work legitimate jobs and engage in legitimate transactions, they would not notice a net drop in their income.