When a cash deal is no deal

Everyone has accepted a discount for paying cash rather than credit before. But these misdemeanours do add up, and so does their impact.

One of the lessons I try to instill in my students is to listen to your gut. If something feels uncomfortable, rather than rationalizing away the impulse, try to understand why. I experienced something like that recently, and it was money related.

While my everyday financial life is based on plastic and online transactions, I still visit the automatic teller machine at least weekly. The cash economy is alive and well in the small proprietor service sector.

I pay cash to my cleaning lady, the person who feeds the cats when I am away, the woman who does my pedicure in her basement, and many other self-employed people who make my life easier. Most of their businesses are too small to take credit cards. I have no idea whether they declare their incomes to the Canada Revenue Agency.

My hairdresser, on the other hand, accepts credit cards but offers a lower price if you pay cash. I mostly take advantage of the discount. But recently, he was complaining to me that it is hard to get a mortgage when the bank bases your income on how much you declare on your tax return. That's when I felt the nagging voice of discomfort. Not about what he is doing — but about my actions.

If indeed he is not declaring the cash income for tax purposes that is, of course, against the law and hence impossible to justify from an ethical perspective. All of us are familiar with the rationalizations: rich people hire advisers to help them hide income legally, and this is the only way the small guy can get a break. Everybody cheats. The government just wastes our money, so why should I pay more tax than I have to?

But what is my role in accepting a discount for paying cash? I am presumably getting away with not paying HST and am aiding and abetting my hairdresser's ability not to declare the income. Why had I continued to pay him cash? I asked a number of other people whether they had accepted a lower cash price in the past, and why. Most said they had done so. I think their reasons (and my rationalizations) are instructive.

  • I am saving money.
  • The amounts, individually, are small and so we think they don't matter. Although the overall size of the underground economy is massive ($35 billion, according to the latest Statistics Canada data), it is hard to believe that my individual actions have much impact.
  • We sympathize with the small business person — often he or she is barely making it financially and we have become friends.
  • Everyone does it. We are not surprised to be offered a cash deal, and consider it "normal" to accept.
  • We feel it's not really wrong. As one person said to me, "It's no different than driving 10 km faster than the speed limit on the 401."
  • It's insignificant in comparison to the big crooks who pay huge bribes, sell dangerous products, hide their cash offshore or steal from shareholders.
  • It would be very uncomfortable for me to tell my hairdresser that I think he is doing something wrong  — he would think I'm preaching and it would make no difference to his behaviour.

If contributing to the underground economy still seems trivial, consider that these are the same rationalizations we use every day when a client or a colleague or our employer asks us to do something we're not sure is right. We all have to decide whether to allow a certain accounting treatment or tax deduction, say something to a colleague who is doing something we think is wrong, tell our boss why we disagree with a recent decision, or ask a question about something suspicious.

As professionals, we have a higher ethical responsibility than the average person. But we are not immune from falling back on the same excuses. Next time you overlook a misdemeanour, ask yourself why.