Vox runs a piece repeating the old trope that credit card rewards benefit the rich at the expense of the poor, because credit card processing fees result in higher prices – including for people who don’t pay by credit card. There’s a unique twist to the piece though since they call for taxing card rewards.
“Rich people get a large subsidy on everything they buy,” Klein told Vox. “The fact that they’re tax-free is a big deal also, because wealthier people pay higher income taxes, so the tax-free advantage is higher the richer you are.”
In other words, the more you spend, the better the rewards, and the better the tax break.
Here’s a TikTok making the argument, which turns out to be highly misleading.
@planetmoney Credit cards are a tax on the poor. #creditcard #tax #economics #tiktokpartner #learnontiktok
Here are 5 reasons, though, that this is misleading at best:
- Where interchange caps have been implemented, prices haven’t fallen Current prices are prices people are willing to pay at current volume of transactions (supply and demand). Capping interchange means lower costs to retailers but there’s no reason to expect those lower costs to be passed onto consumers. Prices didn’t fall in Europe or Australia when interchange caps were instituted.
- Accepting credit cards is cheaper than cash Depending on the business, accepting cash costs 5% to 15% which is far more than credit cards cost. That’s because, among other costs, employees pocket cash, they make incorrect change, having large amounts of cash drives up insurance costs and it attracts outside theft.
- People who pay by credit card spend more Even if credit cards were more expensive to accept, it’s well worth it because people paying by credit card spend more – they aren’t constrained by the cash in their wallet and may be less inclined to worry about smaller amounts of money. It’s one of the least expensive and most effective marketing expenses a business can incur.
- Higher prices for the poor (and everyone else) aren’t driven by credit card rewards if you’re concerned with pricing trends you should be focused on inflation, not interchange. And of course worry more directly about how you can increase access to the banking system. Encourage, rather than encumber, greater experimentation with financial tools that make electronic payments accessible to everyone. There’s no discussion of this at all in the Vox piece.
- The benefit of credit cards to merchants is proven by merchant behavior. Not only do merchants voluntarily accept credit cards, in most cases they don’t offer cash discounts or credit card surcharges even as those are increasingly permissible. That’s because they benefit from customers who prefer to pay by card, rather than being harmed by these payment methods.
“Concern for the poor” is being used as a stalking horse for retailer interests who would, of course prefer to pay less for card processing than they do today. At scale, interchange is a big cost for large businesses.
If you’re actually concerned for the poor in the financial system, you’d focus on things that push poorer people into shadow banking systems and deny them access to traditional bank accounts. The Durbin Amendment to Dodd Frank financial reform, for instance, capped interchange rates on debit cards and made offering checking accounts to poorer people unprofitable. Banks could no longer make money by issuing debit cards to their checking customers, and so we saw fee-free checking options decline precipitously. That pushes people into alternatives like check cashing stores and high fees.
In fact, the Vox piece argues for expanding the Durbin amendment to credit cards,
Another potential policy fix would be to lower interchange fees, which the Durbin Amendment, part of the 2010 Dodd-Frank bill, did for debit card transactions. If swipe fees for credit cards were capped, rewards would almost certainly diminish, too. But so would the regressive nature of credit card spending.
Of course discouraging credit card spend pushes more transactions into less transparent means of payment, which runs counter to other government interests as well.
The cheaper to the merchant than cash is false for the small business. Small businesses are often the poor of the business world but aren’t helped with business welfare.
I’ve heard of a small business paying up to about 10% in fees some months.
Small businesses pay for the entire reward as well as swipe fees, security fees, end of the day settlement fees, minimum fees, etc. It’s worse than a Las Vegas hotel with resort fees and electricity fees.
90% of tik tok is uniformed young ppl acting like they’re preaching the gospel. This is just another perfect example of that at work, bunch of stunods
Its time to start taxing miles/points earned while on work trips as income.
The left always focuses on making everyone’s life worse just to make people more equally miserable. The left doesn’t believe in freedom of choice. If they don’t like the foods you eat, pills you possess, drinks you consume, the things you say, or how you raise your kids, they don’t support your freedom of choice to do so. Keep this in mind when you decide who to save from a sinking ship.
Higher sales volume from people buying more with their credit cards than they otherwise would subsidizes the poor with lower prices businesses are only able to afford because of volume. Many people are ignorant of the lower economic growth that plagues Europe because of a different model of banking and credit.
The lesson from this is to take advantage of credit card opportunities now because rewards might not exist in the future as we’ve seen with debit cards. Don’t hoard points. Use them to travel. Tax treatment of rewards is another concern than can change things. With half of business class cabins filled with people on awards/upgrades, i don’t necessarily mind a changing rewards landscape. I might prefer lower business class fares in lieu of rewards programs. While we continue to have sun, I’ll make hay with it.
Why did I open and read @Jackson Waterson just after breakfast? Made me puke in my mouth reading that right wing crazy shit. Going back to bed like us good leftist do, get paid for doing nothing because we know trickle down will soon reach us. Lmfao. Hope I don’t miss Trump being reinstated this August.
Accepting credit cards is cheaper than cash Depending on the business, accepting cash costs 5% to 15% which is far more than credit cards cost. That’s because, among other costs, employees pocket cash, they make incorrect change, having large amounts of cash drives up insurance costs and it attracts outside theft.
***
There is also the added cost/risk of sending employees on bank runs for deposits and change and/or armored truck services, physical safes…Money is also dirty… counterfeiting is also still real
Each year, the cost of accepting cash goes up and up… While the cost of processing a credit card transaction has pretty much stayed the same…
Now, there have been in recent years the addition of more complex rules (PCI) and new hardware to buy (EMV/NFC).
I’m a leftist/ Social Democrat as they call it in Germany, and I totally AGREE with Jackson Waterson.
There is capitalism, and there is Capitalism. Free market economies are what Norway and Denmark are–and they can be successful and benefit the entire population. It’s all common sense, which, unfortunately, is in short supply nowadays.
For those like derek who have “heard of a small business paying up to about 10% in fees” you can google Square payments fee calculator, and see what small merchants actually pay. It’s 2.6% plus 10 cents per transaction, which is well worth spending for the benefits that Gary describes. Add to that, platforms like Square (which any merchant that derek “heard” about can sign up for) will provide you with a whole point of sale system and accounting back end that integrates with QuickBooks, all included in the 2.6% plus 10 cents per transaction that Square charges. With no “security fees, end of the day settlement fees, minimum fees, etc.”
Congresspeople love their rewards too much. I don’t see them trying to tax themselves more, but who knows in this environment…
Who is pushing these stories and articles? There has to be some PR firm hired by a corporate lobbying group behind it…I can’t imagine it’s retailers because without credit cards their business would decrease by much more than the small 1% interchange fees. Some large retailers probably pay FAR less than that. Taxing rewards points is definitely not a popular position or even one people care about among most of the population, so either its just a bunch of wannabe marxists who walk around telling each other how good each others farts smell or my guess there is some dark money DC “think tank” pitching these stories or some other business org.
1. Cash does not cost 5-15%, that is made up nonsense to grab fake facts to bolster your position. There is FAR more fraud/theft from credit cards both from employees and customers than there is with cash. These days employees are lucky if businesses let them keep $50 in their register and if they make change badly they are fired when their drawer count is off.
2. Credit card fees do get spread to everyone because as you said….they are not normally passed on to the customer using the card directly. This does mean cash customers are paying for those fees in the cost of goods.
3. Businesses voluntarily use credit cards, that is BS. They are forced to accept them because the banking system has setup the world to use credit/debit cards as they make them trillions of dollars a year. If a business does not accept them and their fees, they go out of business.
Stop flat out making crap up to try and prove your point….it just makes you look even less credible than you already are.
Tiktok is a mouthpiece of the CCP. Attempting to undermine democracy. App should be shutdown and cancelled asap.
Based on @Ryan Waldrons comment, I’m going with DC based “consultants” who are behind this. Definitely using the image of “caring about the poor” when in reality trying to help their clients bottom line.
Anecdotal evidence:
1. I have been working with my recently widowed almost 90 year-old mother on her finances and convinced her to get an Alaska credit card so she got a free bag when she goes to visit her grandson now that she can travel more freely. I told her to start using it for everything, don’t write checks or get cash out of the bank. She recently commented how much easier it is to just pay one bill a month and not worry about the risk of someone stealing a check or cash out of her purse. The credit card has a lot lower risk of financial loss. Credit cards are just more convenient for most consumers, even old dogs who need to learn new tricks.
2. I have run businesses off eBay for 20 years. Many failed early because the problem of handling cash and checks was just overwhelming. It was only after the creation of Paypal and the ability to exclusive take electronic transactions, including credit cards, did my business really succeed. The ability to have Paypal (and now eBay) handle all the money transfers for roughly 3% of the transaction cost is certainly worth it for a small business, and they offer protection against chargeback schemes. I probably recover half my credit card fees per year in credits for items less than honest customers claim they didn’t order or didn’t receive – all I have to do is show the item arrived at the address specified. Add-in-all, the recordkeeping automatically loaded into my accounting program both for inventory purchases as well as sales, and credit cards are a godsend that entirely worth the fees I have to pay to use them.
vox is fodder for the perpetually sad and broken.
My wife worked for a medical clinic as an accountant. The books were off by several hundred dollars every month. It turned out that the person responsible for depositing the money from the vending machines along with the checks from the clinic practice resigned after my wife discovered the coins weren’t making it into the bank account. While it could have been a bank employee, they tend to have better security. Added to that, my wife was fired by the head of the finance department who was good friends with the person who was allowed to resign. But yeah, cash is a problem, and the firm doesn’t always even know about the problem.
Businesses are just getting more greedy tacking on those cc fees.
According to CNBC There was 28.65
billion dollars of credit card fraud in 2019 worldwide. Please don’t use security as your reasoning for supporting this subsidy that we are benefiting from.
Hey Gary, Another great topic to raise the temperature of your readers. Waking up the trolls from their slumber really fills up these comment boards. Vitriol is such a great tonic for a flagging blog business.
If anything, the card processing fees produce a transfer of wealth from the ill-informed to the better informed more than they produce any kind of transfer of wealth from the financially better off to the financially worse off from the start.
When it comes to businesses that may see lower card processing fees from a cap on card processing costs, they don’t reduce their prices, they would likely just pocket the savings and maybe act as a bit of a drag on raising prices as fast in the future.
Businesses that are cash intensive have substantial cash handling costs and related risks and often the higher proportion of payments a retail business gets in cash the more likely the business has higher prices for goods than stores selling the same goods but which have a higher proportion of sales being non-cash transactions.
Unfortunately consumers are increasingly in a pickle of a situation whereby prices are more sticky when it comes to downward pressure on prices than they are in the face of upward pressure.
Gary’s take on this issue is the same as mine.
We need to focus on getting the poor and disenfranchised better enfranchised with the formal banking system and in a better position for being better banked when it comes to engaging in all sorts of financial transactions. The poor suffer most from being provided worse and more costly access to banking products than from interchange fees.
Just another of the teenie bopper generation shooting their uninformed mouths off about something about they know, nothing about except some moron liberal fed it to them. We have let them and their socialistic message ruin the kids values and appreciating for what got them to the point they have accomplished nothing yet think the world revolved around them. Even worse they spent a whole year in their cozy “safe spaces” dreaming up all this junk as the attempt to become some sort of “viral” celerity with this idoitic Tic-tok.
In Europe those interchange fees were not included, so how are prices supposed to go down? Those fees were always on top of your price, so nobody used credit cards, because it was so expensive! Now those fees are so small that merchants do include them – and guess what? – Paying with a credit card has become SIGNIFICANTLY cheaper! Now they are a viable option, but the sentiment still holds. Have you ever asked your self why credit cards were so unpopular in Europe?
Gary please stop this nonsense, you are losing all credibility!
Just wait til raving mad Lizzie Warren gets a hold of this story and starts one of her televised finger pointing performances at the credit card CEOs.
Just because they can tax something doesn’t mean they should.
What are the processing costs for keeping track of this?
SeanNY2 about Square is wrong.
Here’s what Square writes:
What goes into average credit card processing fees?
When it’s all said and done, the average cost of processing payments for U.S. businesses that do between $10,000 and $250,000 in annual payments volume is between 2.87 percent and 4.35 percent per transaction.
So it is not wild to think that a very small merchant would pay up to 10% in fees some months.
The quoted Square fee are just the advertised base rate. The real rate is likely higher. Even Costco credit card processing, done by Elavon, is cheaper than most but it, too, is not so rosy. They have a minimum monthly charge, which can be high if the number of charges is low.
Credit card companies are crooks. They extort money from small merchants by offering all these rewards, which the small business has to pay in full. Easy to give away other people’s money. If I use a small business, I think hard before using a credit card. If I do use a credit card, I don’t use a reward credit card because I don’t want to be a terrorist bully robber.
@IP Thankyou for your insightful remarks about the generation that will raise your grandchildren. These poor souls will never appreciate the wonders of Elvis Presley, Ed Sullivan, Ford Edsels, 8 track tapes, fax machines, rotary dial telephones and all the other wonders of ages past that inform your deep wisdom.
https://www.urbandictionary.com/define.php?term=old%20fogie
I do hereby nominate Jackson Waterson’s “The left always focuses on making everyone’s life worse just to make people more equally miserable.” as the pithiest comment sentence for June 2021 on View from the Wing. There needs to be a second on this for Gary to consider.
I looked into Square and there are pros and cons. It’s not all pro.
Excerpts:
Third, the Square card reader is simply unreliable, explaining why it comes free with sign-up.
Square Cons:
Not ideal for big companies with huge transactions.
Some account stability issues.
Not suitable for high-risk industries.
High fees for large businesses.
Square is different but not entirely perfection and certainly not free. Maybe it might be good for the micro business that has 3 employees. Those are the poor of the business world. Democrats are supposed to be for the poor and Republicans for the rich but that is sometimes the opposite. Other times both are anti-small business.
When I’m paying for large invoices at my company, with my rewards card, I immediately think of and thank all of the poor people who have allowed me this privilege. The same thing applies as I settle in to my Intl F or J seat…
I work hard and make a lot of money. Frankly, I don’t care about the “poor” who are too lazy to work and think the idea of a fun night out is to riot and loot a store, that is of course when they are not out raping old ladies or abusing real human beings. I am happy I get benefits that cost the poor. Sorry to sound so horrible but what is real is real.
While you’re mostly right, point number 2 is dubious: “But the real cost of cash ranges from 4.7% to over 15% for some retail segments”. In some businesses I’m sure that the costs of handling cash do run within those parameters but as a business owner whose business takes both cash and plastic I can tell you that my costs are vastly lower than that. I’m not saying that handling cash is free but it certainly runs under 1% versus cards which run more like 2-3%. Then again I may be an outlier.
@Derek
It’s changed. 95% of people making over $2 million a year are leftists. Normal White Christian conservatives are economically disenfranchised and disempowered. No matter how brilliant and productive of a venture the said groups offer, globalist venture capitalists favor globalists as we have seen for the last 20 years with nearly all companies getting funding being leftist. Nearly all of the IPOs done of companies in the last 10 years are of companies founded by globalists. Big business no longer deserves the support of Republicans. The bread and butter is small business which is still a bastion for White Conservative Christians. Leftists and Dems don’t care about the poor. They care about the elite and want to make everyone who is not very rich poorer. Instead of raising taxes on those making over $5 million a year, Dems are interested in raising taxes for people making $250,000 a year. Dems always push more regulations and less freedom because big businesses and the elite globalists are most empowered to handle it and thrive while White small-mid sized businesses are priced/regulated/taxed out of existence.
Of course they pay off the bad elements with welfare benefits and programs and use them. They aren’t interested in helping the poor (stopping illegal immigration and oversupply of labor which drives down wages/ending the war on drugs that puts 2 million in jail or prison each year/ending the incentive for creation of welfare babies via welfare programs that are factories for thugs instead of helping the poor).
Republicans should be asking what helps the highest percentage of White Working class Christian conservatives/small-mid sized business owners and base support or opposition to every policy off of that. They’d see higher minimum wage and UBI (to replace welfare that only benefits a select few and disproportionately thugs) make sense and help us more than it helps the left.
It’s all perfectly logical. What else would you expect from supporters of a senile President and the economic incompetents that populate his administration.
@ Jackson Waterson — Interesting alternative facts based in delusion.
@Jackson – you forgot to drop a few N-bombs in your rant instead of the coded “thugs”. Your White Nationalist creds are severely slipping.
@ Gary. Good Article. More truth than fiction regardless of what the critics “feel”.
@ Mr. Waterson. Experience is often the best teacher and it appears you have had ample experience related to credit cards v cash. Personally having owned several small businesses I can easily state that credit cards simplify sales and accounting for small businesses.
I agree with KimmieA.
UA-NYC . . . you really should seek help. Do you realize that at some point you will be held accountable for what you write?
I like having money and obtaining benefits not available to everyone else. I make no apologies whatsoever, and strive to keep my boot on the neck of whomever gets in my way. Meanwhile I travel constantly and enjoy getting free stuff from the credit card.companies. Kind of like you people that get welfare checks enjoy your “free stuff”. Get off the sofa, go get a job and then you can earn money and benefits like I do.
@One Trippe – do you realize you are defending an actual, real, white nationalist? It’s in every single thing he posts. Poster has literally written about the superiority of the White race and inferiority of POC.
But then again, you live in Texas, where they are legalizing the suppression of the POC vote. Stay Proud, Boy.
“People who pay by credit card spend more”.
How utterly silly! This surely cannot be possible when 100% of the people have credit cards. The only reason why people who pay by credit card spend more is because … they are rich!
Which, incidentally, is Vox’s conclusion.
Well documented that spending is higher when people use cards. The number of various studies often ends up at a number between 20-30%. While this of course does not apply to every single transaction at every business, it has been repeatedly validated, and is one of many basic behavioral economics principles.
So most businesses do see a net benefit. As a former banker, cash handling is a real cost for businesses. There are risks to cash handling. And prices, while somewhat elastic, would simply not change in the presence of lower interchange fees.
@Jake – how absurd, “100% of people” do not have credit cards, it’s 60% – 70% of adults – and people use them quite differently.
The great Gavin Newsom has in interviews that minorities cannot get bank accounts or an ATM card.
@ UA-NYC .. . Oh, ok. So your mind your immature, profane and degrading comments are justified? Dig deeper lad.
@derek heard of a small business paying up to about 10% in fees some months. That is BS. Show the FACTS and get off the fake news. in 30 years in business have NEVER HAD THIS HAPPEN.
Cash transactions can get you killed by robbers. Credit card transactions robbers can not steal….
@jake. 100% of people do not have CC? BS. If you do not have a credit card then that is because you are do not have any idea how to control your own finance. You need a credit card to rent a car, rent a hotel room, book a plane, purchase things on line…. and if you say you can do that with a debit card then you just proved my point that you have no financial knowledge .
@tomri It’s true. It’s mainly small offices that occasionally take credit cards. For example, a one employee tax preparation company or a one lawyer firm that works in a business center room. They may have only a few charges per month which can yield 10% deducted or even more.
But why should credit card companies force a merchant to take all credit cards of one brand (like MasterCard), which means the merchant has to pay the entire reward. The credit card company or bank pays nothing. For example, if there is a 1.5%-2% cash back, the merchant pays the entire cash back and has no choice. That is in addition to the usual fees. Even when a credit card is declined, the merchant gets charged.
@UA-NYC: unfortunately there are many on this site similar to @Jackson Waterson. Maybe @One Tripp is one as well. I busted a gut laughing at @Jackson Waterson and his White Christian comments. Those White Christians need to start figuring out how they continue to keep that title after getting on the Trumptrain. He is their standard now.
@Derek The quote you shared is not Square describing their fees, that quote is Square criticizing their competitors and exaggerating about them. And still they can’t claim anyone is paying over 5% because no one is.
Square fees are 2.6% plus 10 cents per transaction. And that’s it. There’s nothing more. I have been watching our payments for four years and it’s always the same: 2.6% plus 10 cents per transaction. All in.
Anyone who is paying more than that somewhere else can sign up for Square for free. There is no minimum. And my original free Square card reader has worked flawlessly for the last four years. They sent me two but I’ve never even opened the second one.
Since you are concerned about small businesses, you I recommend asking the restaurants you go to about the various rip-off ordering apps like seamless which charge between 14% and 30% of the bill. Small restaurants are being run out of business by these predators, but the restaurants can’t opt out because then they would get no orders because people are hooked on the convenience and don’t know how much it is hurting the small restaurants that are feeding them. If people knew how much these companies are gouging they would use google maps and order with the restaurant directly.
If you could convince just a few people to order directly it would more than pay for the restaurant’s credit card fees.
@jackson Because non-white or non-Christian working people don’t deserve anything? Aren’t Republicans whining about a labor shortage? Boo hoo hoo that white christian conservatives are not actually the majority. If people in this group are not millionaires it could be because they are too DUMB. PS you think its ‘lefties’ that are against liberalizing marijuana laws?