hero image

Researchers from the University of Georgia have found that eliminating paper money would be beneficial to people. This fact remains true if the U.S government lowers certain taxes.

Although people can exchange paper money without the government knowing, it can easily trace online transactions and credit card payments. For this reason, the Internal Revenue Service (IRS) would have to eliminate certain taxes as tax evasion would be rare when they phase out paper money.

According to William D. Lastrapes, the Bernard B. and Eugenia A. Ramsey Chair of Private Enterprise in the Terry College of Business and a study co-author, eliminating large bills such as $100 and $50 could benefit the average American as this would mean less tax evasion. If there is less tax evasion, then the government can lower or remove particular taxes.

Researchers used macroeconomic modeling to come to the conclusion

The researchers used macroeconomic modeling to determine how abandoning paper money could change the lives of Americans. Macroeconomic modeling looks at tradeoffs such as how the government misses paying debts or spending on public services because of tax evasion. Despite this, tax avoidance through paper money reduces taxes for businesses and consumers, thus causing increased productivity.

Researchers found that Americans would not do so well if the governments eliminated all cash, requiring them to account for every bit of their income. As a result, this would violate privacy and reduce public productivity. But, on the other hand, they also found that if the government lowered income tax, it would balance out the elimination of paper money, benefiting the public.

Findings do not apply to low-income families

However, researchers note that this finding only applies to middle-class families. Lower-income households depend more on cash payments. As a result, eliminating cash would not have such a positive impact on them. Despite the setback, there are different ways the government could offer assistance to low-income families.

The team notes that they need to do more work on the topic before drawing more conclusions from the study. The study uses a model that looks at the benefits and unintended consequences; hence might be best when choosing the path.