Should we get rid of the penny?

by on June 3, 2006 at 10:04 pm in Economics | Permalink

Greg Mankiw says yes, and I am inclined to agree.  When I lived in New Zealand, they didn’t have Kiwi pennies and no one minded.  My problem, however, is that I don’t know what to do with sales tax (New Zealand had a General Services Tax [correction: Goods and Services Tax], akin to a VAT).  In essence we would have to abolish sales tax on "small" items.  That idea warms my libertarian heart, but what is then to stop suppliers from selling a car piece by piece, painted inch by painted inch?  (But of course they wouldn’t ring it up that slowly at the cash register.)  Must we eliminate sales taxes altogether?  Or can the law accurately specify what is the "natural unit" of a given commodity purchase?  Inquiring minds wish to know…

Here are some relevant links on penny elimination.  It is an interesting microeconomic (macroeconomic?) problem to figure out which prices get rounded up to the nearest nickel and which prices get rounded down.  A related question is why businesses do not already round to the nearest nickel; of course some do.

1 Brock June 3, 2006 at 10:24 pm

Just round down to the nearest nickel (or zero) on sales tax.

2 Dean June 3, 2006 at 11:47 pm

Frictional costs per transaction probably exceed the couple cents you’re trying to save in
sales tax. The problem in principle already exists on a smaller scale, and I don’t think
quintupling it is going to induce that much evasion of taxes.

3 Half Sigma June 4, 2006 at 12:45 am

We could simply have merchants INCLUDE tax in the final prices they charge. Problem solved.

4 Wild Pegasus June 4, 2006 at 1:26 am

The real irony is that, had we kept the dollar as it originally existed, we’d have to introduce millies to deal with gentle and constant price deflation. The abolition of the penny is one more piece of evidence of how debased our money has become.

– Josh

5 Ronald Brak June 4, 2006 at 5:40 am

However PJ, it does mean that in Australia we sometimes we feed our cats people food
instead of cat food because basic people food isn’t taxed and our cats appreciate that.

6 spencer June 4, 2006 at 7:53 am

My local Dunkin Donuts set prices so that after tax the payment is to the nearest nicket so his clerks do not have to bother with pennies. But he has a real cash machine with five registers and two clerks per register going very strong for four hours every morning. He get a nice boost to employee productivity that makes it worth it to him, but other retailers do not seem to have the incentive to follow his example.

7 BaileyY June 4, 2006 at 3:35 pm

…josh is correct — currency inflation/debasement is the core problem.

Today’s American ‘dime’ {10 cents} only has the purchasing power of a year 1950 ‘penny’ {1 cent}.

Year 2006 dime = Year 1950 penny.

Year 2006 penny = Year 1950 ‘tenth-penny’

Americans in 1950 had no need for a ‘tenth-penny’ coin … and they don’t need one now in 2006.

Abolish all penny coins !

Nickels & Dimes should go to.

8 Mike June 4, 2006 at 7:40 pm

How do you know “Americans in 1950 had no need for a ‘tenth-penny’ coin”?

Well, they certainly managed to get by OK without it.

I have to assume their need for a tenth-penny back then would be about as acute as our current need for a penny now. If I have such a need myself, I am unable to discern it.

Bumping up our existing range of currencies by a factor of ten is a fine idea. I can think of anything sells for less than a dime right now, certainly not anything that can’t be reasonably bundled into a ten-cent package.

There have to be some real savings here. Minting pennies already costs more than face value, and fussing with them surely consumes significant amounts of time. I recall counting them at the end of every shift as I cleared out my register (do they still do that)?

Furthermore, we can put animals onto our new coins instead of a multicultural array of minor historical figures, thereby nipping that tedious controversy right in the bud. Eagles, bison, kingfishers, bunnies… what’s not to like?

9 Jim Lebeau June 4, 2006 at 8:52 pm

While getting rid of the penny, we need to bring in larger denominated coins, $2,$5,and $10. A coin could then be used to buy something substantial, and coins would again be seen as useful, rather than as a nuisance.

10 Half Sigma June 5, 2006 at 9:32 am

“While getting rid of the penny, we need to bring in larger denominated coins”

It IS strange that a dollar now buys less than a quarter used to, but Americans still love their dollar bills. No one wants to use the dollar coins.

11 John Mansfield June 5, 2006 at 11:47 am

In Argentine in the years after the Austral was introduced in 1985, small change was sometimes scarce. It usually irritated me, more than it should have, when bus drivers or shopkeepers would hand me a few little candies as change. I don’t think the penny is going anywhere in my lifetime because electronic cash registers enable ringing up transactions with an arbitary number of digits.

12 Mr. Econotarian June 5, 2006 at 4:25 pm

After visiting Australia and Canada, I am very happy the U.S. barely uses the dollar coin and has no two-dollar coin. I prefer my money flat and not so heavy that it pulls my pants down!

On the other hand, I am fine with replacing paper bills with plastic ones to reduce the costs of additional production due to wear.

13 Jay June 5, 2006 at 11:22 pm

My friend proposed a probabilistic rounding scheme. Half the time it’s up to the nearest nickel, half down. In the short run it would save everyone effort, and in the long run would raise the same amount of revenue.

14 Elizabeth November 29, 2007 at 6:41 pm

I dont think we should get rid of the penny because it has so much history and it if we get rid of the penny sale prices would go up

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