A Penny for Your Thoughts
By Mel Miller
By Mel Miller CFA, Chief Economist
“A Penny for Your Thoughts” (acoustic guitar), by Peter Frampton, probably needs to be adjusted by the cost of making a penny. Since 2006, it has cost the Treasury more than a penny to make a new penny. For the fiscal year ending September 30, 2012, the unit cost for the Mint to produce and distribute each one-cent coin was 2.00 cents. That year, the Treasury made 5.835 billion pennies, generating a loss of $58 million.
Last fall at The SRI Conference, as a new president was being elected and our political leaders wrestled with ideas to slow the rise of accumulated debt, I offered a common sense solution—one that would eliminate the penny, save the Treasury some $58 million annually, and begin to chip away at the national debt. At that time, I seemed to be the only economist concerned about this issue. But the March 2, 2013 issue of The Economist focused some attention on this. I am happy to no longer be alone.
For those of you not at last year’s conference let me restate my plan. I would eliminate the penny and have each retail transaction rounded up to the next nickel. The amount of the rounding would be stated on the sales receipt as a “contribution to deficit reduction.” All money raised would go toward principal debt reduction.
How much would this generate in a year, over and above the $116 million the Treasury would save in not producing any pennies? I’m really not sure, since nowhere can I find data on the number of retail transactions (buying gas, groceries, lattes, etc…) that occur in a week, a month, or a year. But I know it could be a LOT.
Of course, some retailers might adjust their prices so that even with tax, the tally for most transactions would already be on the nickel. So the actual amount of deficit reduction that could be generated would be difficult to calculate, but every penny would count for something and they would add up quickly.
However, it’s the motivational factor that may be the greatest value in this plan. Just as the price of gasoline and thus energy policy is always visible to the consumer, I think deficit reduction needs to constantly be in front of the consumer. We are all in this together.
I realize that it would take a while to bring our $16.5 trillion national debt down to something reasonable. I also realize that the zinc industry would be negatively impacted. But eliminating a coin is not unprecedented. The United States had a half-cent coin until it was scraped in 1857. Other countries have also eliminated lower value coins without dire consequences.
I feel this plan has a great deal of merit. What about you?
Oh, by the way; a nickel cost 10.09 cents to make in 2012!
Posted: April 2, 2013