Monday, October 10, 2016

Dump the Penny



Why Doesn’t the United States (Finally) Get Rid of the Penny?



Ask The Times, a Times Insider feature, draws on New York Times expertise to answer questions about current events, science, sports, culture and whatever else is making headlines.

A hundred pennies cost $1.43 to produce. Credit Jim Watson/Agence France-Presse — Getty Images

A reader asks: Why doesn’t the United States get rid of the penny, as Canadians have done?

Binyamin Appelbaum, a Washington correspondent for The Times who covers the Federal Reserve, considers the question.

Canada stopped making pennies in 2012, and with good reason. Coining pennies is a money-losing proposition, and people don’t really need them anymore.

The same is true in the United States. Printing paper currency is hugely profitable for the federal government: The $100 bill is one of the nation’s most valuable exports. Quarters and dimes are moneymakers too. But it costs $1.43 to produce 100 pennies. Last year, making pennies cost taxpayers almost $39 million.

And for what? The federal government makes and distributes coins to facilitate commerce, but not much can be bought for less than five cents. Thanks to the magic of inflation, what cost a penny in 1950 requires a dime today.

Average American workers earned nearly a penny a second in 2015. It’s literally not worth their time to bend down and pluck one from the sidewalk.

In effect, eliminating the penny means all retail prices would end in zero or five. Some prices would rise a few pennies; some would be rounded down. Prices that end in 99 cents are common, and penny proponents have argued that eliminating pennies would amount to a one-cent sales tax. But Robert Whaples, an economist at Wake Forest University, actually examined this claim in 2007 by looking at pricing data from a chain of convenience stores. He reported that the savings from prices rounded down would roughly offset the cost of prices rounded up.

Indeed, consumers might actually benefit. Retailers like prices that end in “.99” because people tend to underestimate the actual price. When people see “$4.99,” they tend to pay too much attention to the 4 and not enough to the 99.

Yet Americans like the shiny copper (though not much copper) coins. In a 2014 poll, 71 percent of respondents said they do pick up pennies. And 43 percent said they would be “disappointed” or “angry” if the government stopped making them.

Aaron Sorkin posited through an episode of The West Wing that the government keeps making pennies because Abraham Lincoln is on the front, and lawmakers from Illinois, in particular, are reluctant to eliminate a ubiquitous tribute.

President Obama, however, does not number among the sentimentalists. He said in 2013 he saw no reason to make pennies.

“It’s one of those things where I think people get attached emotionally to the way things have been,” he said.

He also offered what is probably the best explanation for the continued production of pennies: Congress struggles to accomplish even the most obvious tasks.

The penny, Mr. Obama said, is “a good metaphor for some of the larger problems that we’ve got.” The government, he said, has a poor track record of getting “rid of things that don’t work so that we can then invest in the things that do.”

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