Penny Earns Being Saved
Does it still make sense to have the penny when more purchases are made with credit cards and other forms of electronic payment and the cost to make coins has increased? The answer, for a variety of reasons, is a resounding “yes.” ■ First, consumers benefit with a low denomination coin. The penny helps keep high prices in check. The alternative to the penny, rounding prices to the nickel, hurts consumers. ■ Second, there is strong public support for the penny. National polling shows that more than 66 percent of Americans favor keeping the penny. ■ Third, penny elimination doesn’t save money. In fact, government costs will increase without the penny. ■ Fourth, America’s wonderful charities raise millions from the penny. Groups like the Salvation Army and Ronald McDonald House Charities rely on small contributions that prove the penny’s value. Each of these points deserves further discussion. To the first point, businesses seek to maximize profits. There is no incentive for businesses to set prices in a way that will lead to rounding down. Research by Penn State economist Ray Lombra, and more recently by Georgetown fellow Robert Shapiro, shows that consumers would be hit with a multi-billion dollar rounding tax without the penny. According to Federal Reserve studies, people with relatively low incomes use cash more frequently than individuals with higher incomes. Sixty percent of transactions under $10 are conducted in cash. Since only cash transactions will be subject to rounding, any move to eliminate the penny would hurt “unbanked” Americans who have no other option and lack the means to make non-cash transactions. Second, polling over the last 30 years shows unwavering public support for the penny. Polls conducted by Americans for Common Cents consistently show two-thirds (66 percent) to three-quarters (74 percent) of Americans favor keeping it in circulation. Americans understand that eliminating the penny would lead to a rounding process and cost them hundreds of millions of dollars in higher prices. Third, rounding to the nickel will lead to a demand for increased production of nickels, with a production cost of almost nine cents. It’s hard to see how you save money by making more nickels that are losing money. Moreover, there are fixed Mint overhead costs that would continue if penny production ended. An August 2017 study funded by the coin-cashing service Coinstar estimated $295 million in real annual cost to taxpayers if the penny is eliminated. Fourth, many local fundraising drives are fueled by pennies. So are canister collections by charitable organizations such as the Ronald McDonald House, Muscular Dystrophy Association, the Taco Bell Foundation. Salvation Army and others. America’s charities are the foundation of our nation’s social safety net and help to ensure that people in need get the help they deserve. Penny drives are critical to charities. The penny funds innovative cancer research. One example from 2009 is particularly telling. On the 200th anniversary of Abraham Lincoln’s birth, the Leukemia & Lymphoma Society celebrated in New York the 1.5 billionth ($150 million) penny collected by school students across the country for the “Pennies for Patients” program. Finally, the multitude of data breeches should dispel the notion that the digital economy is more secure. No doubt the credit card companies will continue to discourage the use of cash while trapping people in debt. Similarly, large data companies will continue to force customers to choose their cashless way, all the while profiting from ad buys tied to your digital profile and purchase history. But in a democratic society, freedom also should entail the freedom to choose one’s form of payment.