Friday, June 15, 2012

Cutting Cents Yields Real Dollars

Everyone agrees the United States has a long-term deficit problem, and everyone agrees—at least in theory—that we should cut government waste.

Here’s an approach that makes sense: stop making cents. Kill the penny, what the US Treasury officially calls the one-cent piece.

Here’s a short history of the US penny. We started with large cents in 1793 and only introduced the small cent piece in 1856. The Lincoln head became standard in 1909, marking the 100th anniversary of his birthday. In 2012 it costs the mint 2.41¢ to produce a penny. Eliminating the penny would save $60 million a year—not enough to solve the deficit problems, but not nothing either.

Canada (whose dollar is almost par with our own) is ditching its penny this fall. Not that we want to be led by that country to the north. After all, if we followed their direction in the 1970s we would have long ago adopted the meter and thrown away our yardstick. Then what would we do with all those duplicate wrench sets to cover both metric and English measurements?

Back to the penny. In 1793 a penny could buy something more than a dime can today. Because of a penny’s value, we also minted a half-cent starting in 1793. It was discontinued in 1857 at the same time the large cent disappeared. Note that it took over 150 years to get rid of the half-penny. Since another 150+ years have slipped by, we have permission from the previous example to get rid of the penny.

Lots of people don’t use pennies now. They rely on the ubiquitous penny container at every checkout to round their purchase to the nearest nickel.

Opponents suggest eliminating the penny will result in inflation. Ever hear of rounding? We do it all the time at the gas pump when they charge us a price ending in .9¢ for a gallon of gas. Sales tax is rounded up or down on every transaction. Some things would even become less expensive. For example, an item priced at $9.99 will have to drop to $9.95 to stay under $10.

In the spirit of full disclosure, I must report that only four years after the half-penny’s demise the US plunged into a Civil War. I don’t think one caused the other, but our politics are currently looking pretty ugly.

I don’t know about you, but I’d be willing to forego the penny to save $60 million a year, even if I do risk being blamed for the Civil War of 2017.

~ Jim

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