The War on Cash: A Regressive Tax

In the United States 81% of adults have at least one credit card. 98% of those with a family income greater than 100K have a credit card while 61% of those with a family income of less than 40K have a credit card [1].

The proliferation of credit and debit cards has fundamentally altered the costs of goods sold for merchants. Transaction fees imposed by payment processors has forced merchants to inflate the price of their goods and services accordingly. 

“Cash or Credit ?” is now a Hobson’s choice to the rational consumer.

Profit margins of 2% leave gas stations especially vulnerable to payment processor transaction fees [2]

Consumers who pay in cash will pay a premium to do so. The only advantage to paying with cash is the anonymity that comes with it. Opting to play the game created by the payment processors allows consumers to recoup a portion of these now inflated prices via reward programs. Many will conflate these rewards with free money but it’s really just a rebate of the inflated price you paid. Rational consumers also recognize the power of building their credit history through the use of credit cards while enjoying the frictionless transaction process both online and in real life.

With this in mind, it is disturbing to realize that consumers who pay with cash are not only forgoing the countless benefits of credit cards but are also in a sense subsidizing the use of credit cards by others. The dichotomy between those who own credit cards and those who don’t own a credit card make it clear that the 39% of adults with a family income of less than 40K are enduring a notable regressive tax by not having a credit card. This factoid is illustrative of the James Baldwin quote “Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor”

Cash is no longer king. 


[1] https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf
[2] https://www.inc.com/sageworks/why-gas-station-margins-are-razor-thin.html