On Friday afternoons—payday—in the Dallas area, you don’t want to go to the bank. It’s a long wait as Mexicans stand in line to cash their paychecks. Of course, it’s not only Mexicans or only workers in Dallas, it’s workers across the state, large numbers of people working on a cash basis—sort of a cash basis. The employer writes a check for contract labor so he can deduct the wages on a tax form. The employee cashes the check at the contractor’s bank, so they won’t have to pay taxes. These workers are not typical American consumers. They have no bank accounts, pay no taxes, are uninsured, and are part of a growing cash society.
And it’s not just illegal aliens. Owner-operated, small businesses across America are a big part of the cash economy. Convenience store owners, bar owners, and salon owners are living off cash proceeds. America has a large, growing black labor market and underground economy, all based on cash.
It’s people trying to evade paying taxes. Not income tax, but the Social Security tax, also known as the self-employment tax for those who are self-employed. It can take a hefty bite from a person’s income. It wouldn’t be surprising if three hundred billion dollars a year goes untaxed and unaccounted for. If we add in the drug and sex trade, it could be as high as five hundred billion dollars. The vast majority of this money wouldn’t be subject to federal income tax, but it would have Social Security tax.
For the self-employed and contract workers, the current self-employment tax that finances their Social Security retirement is 15.2 percent up to $90,000—13,680 dollars. The Social Security Administration may be losing billions of dollars a year—maybe seventy-six billion per year. Ironically, those who cheat are exactly the people that need Social Security the most. Many of these people will spend retirement on Supplemental Social Security because they didn’t pay in enough or nothing at all. Of course, they’re entitled to it, right? In the future, there will be millions of American citizens demanding their entitlements, who never paid a penny into the Social Security Trust Fund or filed a tax form in their lives.
This isn’t hard to figure out, it’s not sophisticated math. A three-dollar pound of coffee will make sixty cups of coffee. At a dollar a cup, it’s a nice profit. An owner-operator from Pakistan, India, or a lifelong neighbor keeps the undeclared cash and lives quite a bit better. It’s the same for hair salons, auto repair shops, donut shops and nearly every mom and pop business. It’s true for the bars, gentleman’s clubs, and massage parlors. Why claim the money and pay taxes on the profit?
It’s not only Social Security tax. States are losing sales tax, too—some of these small retail outlets see the sales tax as extra profit. And of course federal income tax, some people are taking money off the top, which would be subject to federal taxes.
America has the technology to eliminate paper money and coins—a cashless society. A national cash-card, which every business would accept, would reduce labor costs, tax cheats, crime, and force business to declare one hundred percent of their income.
A customer would pay with his cash card and the money would be deducted from his account and sent directly to the business’s main bank account. Most banks already have a cash card system, but the system isn’t mandatory or nationwide, and it hasn’t eliminated the need for cash. A government-owned and operated cash card system would be mandatory—no retail outlets, restaurants, salons, bars, massage parlors, auto repair shops, or vending machines could accept cash.
Each business would have a general account where money from the cash card would be instantly deposited. Each business location would be limited to one bank account, but the accounts could be subdivided, allowing an owner to track each cash register and department.
Every retail transaction would include a digital fingerprint and picture that would be stored on the bank’s computer. To open a cash-card account, the bank would need positive ID, and bio-data—pictures and fingerprints. This would reduce the number of stolen cards, unscrupulous shopkeepers, and unwarranted claims of fraud. People are leery about having their pictures taken, but a picture and fingerprint will save massive amounts of time and effort. Here’s some irony: A person won’t shop at a store that takes fingerprint and digital pictures, but they willingly give up their name, address, and Social Security number. The typical criminal can do nothing with fingerprints and a picture, but they can do a lot with your name, address, and Social Security number.Even more ironic, it’s easier to get pictures, fingerprints, and DNA from a person than it is to get their name, address, and Social Security number.
Obviously, a cash card system would cut down on crime, especially robberies, since individuals wouldn’t carry cash, and stores wouldn’t have a cash register. Banks robberies would be cut down to zero. Home burglary would be reduced. The thief selling goods at pawnshops and on the internet would leave a very good electronic trail. With a cash card and cashless society, physical crime would be reduced while electronic crime would increase.
The amount of time and money wasted on cash is appalling. Even more appalling is the number of foreigners who have been brought to this country to deal with the cash economy. Do away with cash and the federal government would be able to shut down 80 percent of the minting capacity in America. 50 percent of the bank tellers and half of the bank outlets would be gone. Retailers would no longer have to make the daily bank run or have money in a cash register. Since no one would be allowed to accept checks or cash, checkout time would be quicker, saving time and reducing the number of cashiers. A nationwide cash card would fix our labor shortage.
Oddly enough, America has shied away from technology. Instead of embracing technology, we import cheap labor to work as checkers and cashiers. But cheap labor will cost a hundred times more than cash card technology. The educational and health care needs of tens of millions of checkers and their families can run in the tens of billions.
Nearly a crime: banks want to maintain control of the American monetary system so they can charge a fee for each consumer transaction. Bankcards and credit card fees can run from one to three percent of the purchase price—the smaller the business, the higher the price—large multinational corporation like Wal-Mart have the bargaining power to keep credit card and cash card fees low but small companies simple have no bargaining power at all. A national, mandatory cash card will level the playing field. There would be a minimal fee and just enough to pay for the cash card system. Bank income would drop, but not a lot—people who use their cards would continue to use them.
Cash is used at convenience stores and fast food restaurants out of convenience. The bottom twenty percent of the socio-economic ladder can’t afford bank accounts, using cash out of necessity. But a big part of the cash trade is used by tax cheats, political bribes, the illegal drug and sex trade and criminals—control of the cash flow will help clean up America. In Mexico, for example, a drug bust in the spring of 2007 found two hundred million dollars in cash—with cash card technology that would never happen. At least getting the money out of the system would be harder—an electronic trail would be left, and hopefully, taxes would be paid.
The average middle class family would benefit from a cashless society. The tax burden would be shared equally and honestly. One nationwide cash card system would be cheaper to maintain, cheaper for businesses and consumers. The government would save billions of dollars by reducing government minting costs, the transportation of money and dealing with counterfeits. Like the National Identification Card, one nationwide cash card would be easier to protect from fraud and theft. There would be breaches of the system, of course, but it would cost less than the number of breaches in the current banking system and less than the amount of counterfeit dollars that are circulating the globe.
Embracing modern technology, saving labor costs, reducing tax cheats, hampering the illegal drug and sex trade are things in our national interest. Yet the federal government won’t embrace a cashless economy. Poverty is always a bad choice.
Wal-Mart is working diligently to put radio frequency chips into products. The current cost of a chip is roughly three cents, but that price is too high. Wal-Mart needs to get the price down to half a cent or so before, it can successfully deploy radio frequency chips.
Besides developing a cash card and a cashless society, the federal government should mandate the use of radio frequency chips in every product and force the consumer to pay for it. At three cents per chip, the average consumer would spend less than five dollars month. For example, at 3 cents per chip, the consumer who purchases a hundred fifty items per month would pay $4.50. The consumer who purchases 500 items a month—an unlikely event—would pay an extra 15 dollars a month for his goods.
Compare that to the high cost of cheap labor, which shows up as an added cost to our health care system, schools, and the criminal justice system. Instead of paying sixty dollars a year for radio frequency chips, the consumer is paying hundreds of dollars a year for the health care and educational needs of cheap foreign labor.
With a cashless society and radio frequency chips, Wal-Mart could lay off three/fourths of their checkers. Grocery stores would no longer have any checkers, only a few friendly people to help and security camera monitors. Malls would have friendlier and more courteous clerks because they wouldn’t have to be constantly checking orders and taking money.
Convenience stores would not take cash and every item would have a radio frequency chip. Instead of having one checkout lane, it would have five or more and one clerk who would watch and help. Customers would scan their own goods and pay automatically with their cash card. Standing in line would be outdated.
In the 1970s, several companies tried to develop “clerk-less” gas stations. Gas pumps took cash and cigarettes, soda, chips, candy, and oil were available in vending machines. In the 1970s, the internet wasn’t available. There were few security companies and no off site security monitors—web cams were a thing of the future. The “clerk-less” gas station didn’t work.With cash card technology and radio frequency chips, “clerk-less” convenience stores would make a comeback.
Various books and articles have been written about a flat tax, in fact very little can be written about the flat tax that would be new. Surveys have found that most people would like to see a flat tax in America. But politicians have shown no leadership what so every and that’s not new either. Politicians need special interest groups to fund their campaigns and the wealthy need special tax breaks for various business ventures.
In the news, hedge funds use the 15 percent capital gains tax, instead of the 35 percent personal income tax for their profits. But this is what’s wrong with American tax laws, the 15 percent capital gains tax is too low and the 35 percent income tax is too high.
In chapter six, the same retirement program for every worker in America was outlined. The income tax should be the same—a flat tax of 25 percent. The first 24,000 would be taxed at 12.5 percent—7.5 percent to the Social Security Trust Fund, and 5 percent into the individual’s private retirement fund. The next seventy-six thousand would be taxed at 25 percent—12.5 percent retirement and 12.5 percent in the federal government’s general fund. Every penny over a hundred thousand would have a flat tax rate of 25 percent. There would be no child tax credit, personal allowance, housing or car allowances, and certainly, no special tax breaks for the wealthy. Salary, dividends, interest income, inheritance, and capital gains would all be taxed at 25 percent.
One politician suggested a flat tax rate of 17 percent, but the idea was quickly dropped because it was too low. It was impossible to fund the government’s gigantic hunger at a flat 17 percent rate. The rate has to be high enough to fund Social Security and the federal government, but low enough that it won’t cause fear and panic.
Advocates for the poor always want to tax the rich, but the higher the tax rate—the greater twisting and turning of the screw—the more tax-conscious people become. The wealthy spend huge amounts of money figuring out how to evade their tax obligation. Because the tax rate is too high, congress leaves silly loopholes in our tax law—an invitation for the wealthy to evade taxes. A person will spend a million dollars if he can save two million on his taxes, but he won’t spend any money to save five hundred thousand. Why risk so much for so little? A flat tax of 25 percent with no deductions will increase government revenues, and be fair to everybody.
In the Dallas area, two of the richest men in America have run into tax trouble. Apparently, their accountants and attorneys recommended a shell company be set up in the Caribbean, and income funneled to the offshore location would be tax-free, but the tax dodge was illegal. When the rate is too high, people take extraordinary risks to evade taxes. Attorneys and accountants working at America’s largest banks, and most prestigious law and accounting firms have participated in shell games, setting up some of the phoniest tax evasion schemes in the business. When—what should be—the pillars of the community are cheating on taxes, everybody will—the American tax system is no longer functional.
In Russia, the flat tax is 13 percent; in several other countries, the flat tax runs 17-to-21 percent. Any flat tax system should have a goal of 20 percent or less. The 20 percent figure, including money set aside for retirement, is about right. But the initial tax rate has to be high enough to balance the budget without using money from Federal Government Trust Funds. A flat tax of 25 percent would work for America.
National Sales Tax
Goods in America are manufactured elsewhere. This is obvious to even the casual observer. If a company manufactured tennis shoes in Texas for two dollars a pair and sold them to a chain store for ten dollars—the company would have to pay corporate tax on the eight-dollar profit. If the same company manufactured them in China for one dollar, they can set up a shell company in the Bahamas that would buy them for one dollar a pair from their Chinese subsidiary. Then they can sell them for ten dollars to an Americans store. The company would earn nine dollars per pair, but wouldn’t have an American tax bill.
The “foreign company” can invest the proceeds in America. The company, for example, could buy a commercial building or invest in the stock market. On paper, it would appear as if foreign investors bought the building, but the true purchaser would be an American doing business in China with an offshore shell company.
American businesses are at a disadvantage because of the corporate income tax. Seventy-five percent of all American workers work for small and mid-sized companies, twenty-five percent of American workers work for the large multinational companies. Corporate tax laws discriminate against the small and mid-sized companies and help multinationals that produce goods in China or other countries and import massive amounts of goods. Free trade laws have hurt American companies, while helping multinational corporations, and foreign companies. It’s time to level the playing field.
Business and corporate income tax should be replaced with a national sales tax on goods and services. A sales tax would tax American-made goods and foreign-made goods equally—goods from a company in Texas would be taxed at the same rate as goods from a company in Japan, Mexico, or China. A fair national sales tax would be five percent for goods and services. It would include food. Food in America has become a luxury item. People purchase twenty-dollar-a-pound cuts of meat, three hundred dollar prepared meals for Thanksgiving and Christmas. Cakes and pies can run twenty-five dollars or more. These are luxury items, not basic food items.
Advocates for the poor are shortsighted. A poor family making twenty thousand dollars a year might spend five hundred dollars a month on retail purchase, paying 25 dollars a month in sales tax—three hundred per year. Someone making two hundred thousand dollars a year will spend five thousand dollars a month on retail goods and pay 250 dollars in sales tax—three thousand a year.
The national sales tax would be used to pay off the national debt and misused funds from the national trust funds. Part would be invested in wind and solar to reduce our dependence on oil, coal, and nuclear energy. A cashless society, radio frequency chips, a flat tax, and national sales tax will level the playing field for every single American. Middle class Americans needs to force the federal government to modernize.