The End of Cash, the Income Tax, and the Next 100 Years

14 Pages Posted: 27 Feb 2014

See all articles by Jeffrey H. Kahn

Jeffrey H. Kahn

Harry W. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program

Gregg D. Polsky

University of Georgia School of Law

Date Written: February 26, 2014

Abstract

The income tax is technologically very similar to the way it was in its early years, and technological developments have been at the margins of the income tax and have not affected its core elements. Still, technological improvements have made third-party reporting and withholding more efficient, which has allowed these mechanisms to become more pervasively used. Technology has also made it easier for taxpayers to substantiate their activities. These changes have facilitated the evolution of the income tax from its original class tax to the mass tax it is today.

While further technological advances might improve the federal income tax, it could have the opposite effect by paving the way towards its elimination. One particular type of technology — payment systems — has the potential either to fortify the income tax or to destroy it. Payment systems technology (e.g., electronic payment systems) could eventually shrink the cash economy down to an immaterial size and perhaps even make cash as obsolete as payphones. These developments would fortify the income tax by reducing the large part of the “tax gap” attributable to unreported cash income, which would result in increased fairness and efficiency, greater confidence in the tax system, and improved taxpayer morale. But payment systems technology, instead, could destroy the income tax by easing the transition from the income tax to a consumption tax.

This essay, written for the Florida State University College of Law's symposium on the 100th anniversary of the federal income tax, examines the possible effects that moving to a cashless society would have on the federal tax system.

Keywords: tax gap, income tax, consumption tax, cash, cashless

JEL Classification: H20, H24, H26, H29

Suggested Citation

Kahn, Jeffrey H. and Polsky, Gregg D., The End of Cash, the Income Tax, and the Next 100 Years (February 26, 2014). Florida State University Law Review, Vol. 41, 2013; FSU College of Law, Public Law Research Paper No. 676; UNC Legal Studies Research Paper No. 2401636; FSU College of Law, Law, Business & Economics Paper. Available at SSRN: https://ssrn.com/abstract=2401636

Jeffrey H. Kahn (Contact Author)

Harry W. Walborsky Professor, Florida State University College of Law; Associate Dean, Business Program ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

Gregg D. Polsky

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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