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A penny saved could become a penny spurned
By Barbara Hagenbaugh, USA TODAY
WASHINGTON — We collect them in dusty jars, lose them under couch cushions and ignore them on the ground as we rush by.
Once considered a good luck charm, the penny for many has become more of a copper-colored nuisance that has outlived its usefulness.
Although the majority of Americans want to keep the penny in circulation, support for elimination of the 1-cent coin is building. Fueling the momentum: For the first time in history, it costs more than a penny to manufacture a penny, thanks to soaring metals prices.
SMALL BUSINESS BLOG:Time to ditch the penny?
When the government loses money on making a coin that for many people holds little value, it's time to turn off the presses, argue some prominent economists.
"It's really becoming completely pointless," says Francois Velde, senior economist at the Federal Reserve Bank of Chicago and co-author of The Big Problem of Small Change. He argues that the metal in money must be worth less than a coin's face value, because otherwise people will hoard coins, melt them down and sell them for cash, which happened in the 1960s when quarters were made partly of silver.
All cash transactions would be rounded to the nearest nickel, according to legislation that will soon be introduced by Rep. Jim Kolbe, R-Ariz. That would effectively eliminate the need to produce the penny.
"Times change, you have to adapt to those changes," he says. "A penny should be thought of not as some nostalgic thing but as ... currency. And it simply has no use as a medium of commerce."
But eliminating the penny would disappoint Deborah Reed, 56, a retired teacher in Crittenden, Ky. Her church collects pennies to help send orphans to camp every summer.
"I wouldn't be happy," she says.
Ending production of the penny, which today is produced almost completely from zinc with a copper coating, would not be without precedent. The half-cent was scrapped in 1857 because manufacturing costs rose for the largely unpopular coin.
Finland has stopped producing the 1-cent and 2-cent euro coins. The Netherlands and Belgium are both considering a similar move. European countries that use the euro produce their own coins, which can be used in all member nations.
But Kolbe's efforts to eliminate the penny have been unsuccessful in the past, most recently when he introduced similar legislation in 2001. Such proposals have failed in part because proponents to keep the penny can point to polls showing most Americans still back the 1-cent piece.
Fifty-five percent of Americans say the penny is "useful" and should be kept, according to a USA TODAY/Gallup Poll of 1,002 adults taken June 9-11. Although a majority, the percentage in favor of the 1-cent coin was down from earlier surveys. In 1993, 64% of those polled by ABC News called the penny useful.
Support in the latest poll was split along gender lines. Sixty-three percent of women called the penny useful vs. 46% of men. Lower-income people support keeping the penny more than those who are wealthier.
All those pennies you see on the sidewalk? More than three-quarters of adults say that they pick a penny up when they see one on the ground, according to the USA TODAY/Gallup survey.
Retired firefighter Sylvester Neal, 62, says eliminating the penny would be "like losing part of our American history."
Although Neal's opinion is shared by many, he is a bit biased: He has 700,000 pennies in his garage — $7,000 worth — and is shooting for the 1 million mark. This is after he cashed in 800,000 pennies five years ago when he moved from Alaska to Washington state and couldn't find a way to transport them.
"It's therapy for me," he says. "When I get a little uptight, I go into the garage and turn on my music and turn on my lights and play with my pennies. It's like being in hog heaven."
Would he ever cash in his current stash? "Not as long as I'm alive," he says.
Losing money-making pennies
But while Americans say they pluck pennies from the ground, they also say they are happy to ditch them when they can. More than two-thirds say that when they see a "take a penny, leave a penny" dish at the cash register, they are more likely to leave their pennies behind for the next customer.
To former White House Council of Economic Advisers chairman N. Gregory Mankiw, that proves pennies are not an effective tool of exchange, which is the point of money.
"Pennies are so small that you see people leaving them at cash registers all the time now," says Mankiw, now an economics professor at Harvard University. "At the end of the day, I have pennies in my pockets and they're an annoyance. Like lint."
The U.S. Mint produced more than 7.7 billion pennies in 2005, accounting for about half of all U.S. coins made. At 38.5 million pounds, the heft of pennies made last year equal the weight of more than 2,500 male African elephants. But a large number of those pennies and other denominations aren't in circulation. About $10.5 billion, or $93.75 per household, is sitting idle, according to Coinstar, which hosts coin-counting kiosks in grocery stores, banks and other locations.
Until recently, the Mint made money on every penny it produced. That's because the Mint sells coins to the Federal Reserve, which distributes money to banks, at face value. If a coin costs less to manufacture than the face value, the Mint makes a profit.
Faced with skyrocketing metals costs, the Mint estimates it will cost 1.23 cents to produce a penny this fiscal year, which ends Sept. 30, the agency told members on Congress in May. The cost of producing a penny, which also includes transportation, labor and other expenses, has risen 27% in the past year.
The value of the metal in the penny is hovering around 1 cent — still not high enough to make it worth someone's time to melt the coins, separate the metals and then sell them.
Last year, the Mint's coin-making profit was $730 million. Mint officials estimate the added metals expenses for all coins will reduce the agency's profit this year by $45 million.
More than one argument
But the cost of making the coins is just one, and the most recent, argument the penny opponents use.
Because of inflation, a penny is worth a lot less than it used to be. Something bought in 1956 for one penny would take seven pennies today to purchase, according to the Federal Reserve Bank of Minneapolis. That has made the penny a less-valuable part of the monetary system, some economists say.
"It's just a waste of good effort. And it's a waste of metal," National Federation of Independent Business chief economist William Dunkelberg says.
Carl Carreca, who owns 17 Pizza Hut franchises in Tennessee and Kentucky, calls pennies "a big pain." He says when people pay with pennies, it means the coins have to be counted by the wait person and the cashier. They then have to be counted again as they are put into rolls and taken to the bank. That adds up to a lot of time and lost productivity, he says.
"It's a hassle," Carreca says.
But a large number of people are pro-penny.
Americans for Common Cents has lobbied to keep the penny in circulation since the group was formed in 1990. About 40 companies, organizations and individuals, including zinc producers, fund the organization, executive director Mark Weller says.
His group five years ago spent $160,000, or 16 million pennies, in lobbying fees to defeat the coin's elimination, according to the Center for Responsive Politics.
Weller argues that efforts to eliminate the penny will fail again because Americans want the 1-cent coin.
"Change that is imposed without the public's support is going to fail miserably," he says. "The penny is so embedded within our social and commercial fabric and within American society ... that there has to be a pressing need to change what we have now, and there is no pressing need to eliminate the penny."
Weller's group argues that metals prices will likely fall, making the penny once again a profitable venture for the U.S. government.
And at least one economist says eliminating the penny would hurt the poor. When prices are rounded, most of the amounts will be rounded up, not down, argues Pennsylvania State University economics professor Ray Lombra, who has testified before Congress in support of the penny. For those who have little money, those pennies will add up.
"Certainly the working poor — many of them still do not have checking accounts, credit cards — they are conducting their transactions in cash. So they are the ones who are going to bear most of the burden," Lombra says.
Interest in keeping the penny
Others have an interest in keeping the penny:
•Charities. Some charities use penny drives to raise money. Children in New York City collected more than 65 million pennies last year for a total of $655,508.54, according to organizer Common Cents.
"It is a very powerful symbol of the potential we have to turn our wasteful society into a caring and recycling and reciprocal society," Common Cents founder Teddy Gross says.
•Companies. Salem, N.H.-based CTM Group for 15 years has been making the machines seen at parks and other tourism sites that squish pennies into oblong-shaped souvenirs. CTM owns 2,000 machines in North America.
"If (the penny's elimination) ever did happen, God forbid, we would retrofit to dimes," CTM co-founder John Cweiber says. "It would be costly."
•Lawmakers. Some lawmakers, including those from zinc-producing states, have traditionally backed the penny. And the Illinois delegation has supported keeping the penny, which features the face of Abraham Lincoln, who was born in Kentucky but lived in Illinois for much of his adult life.
One issue that may complicate efforts to eliminate the penny: The 200th anniversary of Lincoln's birth is in 2009. In December, President Bush signed legislation ordering the Mint to produce four new pennies in 2009 that will commemorate Lincoln's life.
But Jim Svetz, owner of the Muddy Cup Coffee House, still says the time is right. He has set his prices in 25-cent increments at his four locations in New York state, including tax, so he doesn't have to handle pennies. In fact, he won't even take them. "I don't think there's a need for the penny anymore," he says.
By Barbara Hagenbaugh, USA TODAY
WASHINGTON — We collect them in dusty jars, lose them under couch cushions and ignore them on the ground as we rush by.
Once considered a good luck charm, the penny for many has become more of a copper-colored nuisance that has outlived its usefulness.
Although the majority of Americans want to keep the penny in circulation, support for elimination of the 1-cent coin is building. Fueling the momentum: For the first time in history, it costs more than a penny to manufacture a penny, thanks to soaring metals prices.
SMALL BUSINESS BLOG:Time to ditch the penny?
When the government loses money on making a coin that for many people holds little value, it's time to turn off the presses, argue some prominent economists.
"It's really becoming completely pointless," says Francois Velde, senior economist at the Federal Reserve Bank of Chicago and co-author of The Big Problem of Small Change. He argues that the metal in money must be worth less than a coin's face value, because otherwise people will hoard coins, melt them down and sell them for cash, which happened in the 1960s when quarters were made partly of silver.
All cash transactions would be rounded to the nearest nickel, according to legislation that will soon be introduced by Rep. Jim Kolbe, R-Ariz. That would effectively eliminate the need to produce the penny.
"Times change, you have to adapt to those changes," he says. "A penny should be thought of not as some nostalgic thing but as ... currency. And it simply has no use as a medium of commerce."
But eliminating the penny would disappoint Deborah Reed, 56, a retired teacher in Crittenden, Ky. Her church collects pennies to help send orphans to camp every summer.
"I wouldn't be happy," she says.
Ending production of the penny, which today is produced almost completely from zinc with a copper coating, would not be without precedent. The half-cent was scrapped in 1857 because manufacturing costs rose for the largely unpopular coin.
Finland has stopped producing the 1-cent and 2-cent euro coins. The Netherlands and Belgium are both considering a similar move. European countries that use the euro produce their own coins, which can be used in all member nations.
But Kolbe's efforts to eliminate the penny have been unsuccessful in the past, most recently when he introduced similar legislation in 2001. Such proposals have failed in part because proponents to keep the penny can point to polls showing most Americans still back the 1-cent piece.
Fifty-five percent of Americans say the penny is "useful" and should be kept, according to a USA TODAY/Gallup Poll of 1,002 adults taken June 9-11. Although a majority, the percentage in favor of the 1-cent coin was down from earlier surveys. In 1993, 64% of those polled by ABC News called the penny useful.
Support in the latest poll was split along gender lines. Sixty-three percent of women called the penny useful vs. 46% of men. Lower-income people support keeping the penny more than those who are wealthier.
All those pennies you see on the sidewalk? More than three-quarters of adults say that they pick a penny up when they see one on the ground, according to the USA TODAY/Gallup survey.
Retired firefighter Sylvester Neal, 62, says eliminating the penny would be "like losing part of our American history."
Although Neal's opinion is shared by many, he is a bit biased: He has 700,000 pennies in his garage — $7,000 worth — and is shooting for the 1 million mark. This is after he cashed in 800,000 pennies five years ago when he moved from Alaska to Washington state and couldn't find a way to transport them.
"It's therapy for me," he says. "When I get a little uptight, I go into the garage and turn on my music and turn on my lights and play with my pennies. It's like being in hog heaven."
Would he ever cash in his current stash? "Not as long as I'm alive," he says.
Losing money-making pennies
But while Americans say they pluck pennies from the ground, they also say they are happy to ditch them when they can. More than two-thirds say that when they see a "take a penny, leave a penny" dish at the cash register, they are more likely to leave their pennies behind for the next customer.
To former White House Council of Economic Advisers chairman N. Gregory Mankiw, that proves pennies are not an effective tool of exchange, which is the point of money.
"Pennies are so small that you see people leaving them at cash registers all the time now," says Mankiw, now an economics professor at Harvard University. "At the end of the day, I have pennies in my pockets and they're an annoyance. Like lint."
The U.S. Mint produced more than 7.7 billion pennies in 2005, accounting for about half of all U.S. coins made. At 38.5 million pounds, the heft of pennies made last year equal the weight of more than 2,500 male African elephants. But a large number of those pennies and other denominations aren't in circulation. About $10.5 billion, or $93.75 per household, is sitting idle, according to Coinstar, which hosts coin-counting kiosks in grocery stores, banks and other locations.
Until recently, the Mint made money on every penny it produced. That's because the Mint sells coins to the Federal Reserve, which distributes money to banks, at face value. If a coin costs less to manufacture than the face value, the Mint makes a profit.
Faced with skyrocketing metals costs, the Mint estimates it will cost 1.23 cents to produce a penny this fiscal year, which ends Sept. 30, the agency told members on Congress in May. The cost of producing a penny, which also includes transportation, labor and other expenses, has risen 27% in the past year.
The value of the metal in the penny is hovering around 1 cent — still not high enough to make it worth someone's time to melt the coins, separate the metals and then sell them.
Last year, the Mint's coin-making profit was $730 million. Mint officials estimate the added metals expenses for all coins will reduce the agency's profit this year by $45 million.
More than one argument
But the cost of making the coins is just one, and the most recent, argument the penny opponents use.
Because of inflation, a penny is worth a lot less than it used to be. Something bought in 1956 for one penny would take seven pennies today to purchase, according to the Federal Reserve Bank of Minneapolis. That has made the penny a less-valuable part of the monetary system, some economists say.
"It's just a waste of good effort. And it's a waste of metal," National Federation of Independent Business chief economist William Dunkelberg says.
Carl Carreca, who owns 17 Pizza Hut franchises in Tennessee and Kentucky, calls pennies "a big pain." He says when people pay with pennies, it means the coins have to be counted by the wait person and the cashier. They then have to be counted again as they are put into rolls and taken to the bank. That adds up to a lot of time and lost productivity, he says.
"It's a hassle," Carreca says.
But a large number of people are pro-penny.
Americans for Common Cents has lobbied to keep the penny in circulation since the group was formed in 1990. About 40 companies, organizations and individuals, including zinc producers, fund the organization, executive director Mark Weller says.
His group five years ago spent $160,000, or 16 million pennies, in lobbying fees to defeat the coin's elimination, according to the Center for Responsive Politics.
Weller argues that efforts to eliminate the penny will fail again because Americans want the 1-cent coin.
"Change that is imposed without the public's support is going to fail miserably," he says. "The penny is so embedded within our social and commercial fabric and within American society ... that there has to be a pressing need to change what we have now, and there is no pressing need to eliminate the penny."
Weller's group argues that metals prices will likely fall, making the penny once again a profitable venture for the U.S. government.
And at least one economist says eliminating the penny would hurt the poor. When prices are rounded, most of the amounts will be rounded up, not down, argues Pennsylvania State University economics professor Ray Lombra, who has testified before Congress in support of the penny. For those who have little money, those pennies will add up.
"Certainly the working poor — many of them still do not have checking accounts, credit cards — they are conducting their transactions in cash. So they are the ones who are going to bear most of the burden," Lombra says.
Interest in keeping the penny
Others have an interest in keeping the penny:
•Charities. Some charities use penny drives to raise money. Children in New York City collected more than 65 million pennies last year for a total of $655,508.54, according to organizer Common Cents.
"It is a very powerful symbol of the potential we have to turn our wasteful society into a caring and recycling and reciprocal society," Common Cents founder Teddy Gross says.
•Companies. Salem, N.H.-based CTM Group for 15 years has been making the machines seen at parks and other tourism sites that squish pennies into oblong-shaped souvenirs. CTM owns 2,000 machines in North America.
"If (the penny's elimination) ever did happen, God forbid, we would retrofit to dimes," CTM co-founder John Cweiber says. "It would be costly."
•Lawmakers. Some lawmakers, including those from zinc-producing states, have traditionally backed the penny. And the Illinois delegation has supported keeping the penny, which features the face of Abraham Lincoln, who was born in Kentucky but lived in Illinois for much of his adult life.
One issue that may complicate efforts to eliminate the penny: The 200th anniversary of Lincoln's birth is in 2009. In December, President Bush signed legislation ordering the Mint to produce four new pennies in 2009 that will commemorate Lincoln's life.
But Jim Svetz, owner of the Muddy Cup Coffee House, still says the time is right. He has set his prices in 25-cent increments at his four locations in New York state, including tax, so he doesn't have to handle pennies. In fact, he won't even take them. "I don't think there's a need for the penny anymore," he says.
