Penny Elimination Info

The issue: Should the penny, which now costs more money to make than it is worth, be eliminated from circulation? Or should it be retained, since it is still a useful form of currency? The penny, which has a face value of one cent, now costs 1.23 cents to make, according to the U.S. Mint. That discrepancy has led some critics to question whether the Mint should continue to make pennies at all.

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Supporters of the penny say: Eliminating the penny would be an inappropriate and radical action for the U.S to take, since the penny still has value. Many people make charitable contributions in the form of pennies. Lower-income people value the penny more than higher-income people do, so eliminating the penny would hurt the poor in the long run. Critics of the penny say: The penny is cumbersome and all but useless as a form of currency. Most pennies are taken out of circulation immediately after they are given as change, since so many Americans save them in jars or piggy banks. Counting and handling pennies wastes time at the cash register, which ends up costing businesses millions of dollars each year. In June 2006, Entertainer Kevin Federline rode into Times Square in New York City in a truck whose surface was covered entirely with pennies. After removing an Abraham Lincoln mask, Federline addressed a crowd of reporters and onlookers. "What's happening, New York!" he said. "We're bringing power back to the penny. Man, I feel good about the penny!" Federline's appearance was part of a promotion sponsored by Virgin Mobile LLC, a cellular telephone company. But it was also sponsored by the group Americans for Common Cents (ACC), a pro-penny advocacy group that says the penny is under siege. In several instances beginning in the late 1980s, some members of Congress have proposed legislation that would eliminate the penny from circulation. The most recent such bill was sponsored by Rep. Jim Kolbe (R, Ariz.) in July 2006. If Kolbe's bill passes, all cash transactions would be conducted by rounding transactions to the nearest five-cent increment. Kolbe argues that pennies are essentially worthless anyway. Groups such as ACC, however, have decried Kolbe's bill, calling it unnecessary, with potentially adverse effects on the U.S. economy. Should the penny be eliminated from circulation? Or is it still a useful form of currency that should be retained? Supporters of the penny argue that Americans still use the coins, whether they purchase items with them, donate them to charity or save them in jars. Beyond that, they maintain, rounding prices to the nearest nickel would make many items more expensive. Eliminating the penny would be a radical "solution" to a nonexistent problem, supporters assert. Finally, proponents argue that the penny has historical and cultural importance. Many Americans feel attached to the penny due to its long historical relevance; the penny has been in circulation since 1793. Critics, however, maintain that most Americans do not even keep track of their pennies, stashing them in drawers or jars around their homes, thus taking them out of circulation. They argue that the penny has little use. Many stores and vending machines will not accept them, and they are too heavy and cumbersome to store in any large quantity, they say. Critics further note that pennies actually cost more to manufacture-roughly 1.23 cents each--than they are worth. A Brief History of the Penny The penny has an undeniably strong foothold in U.S. popular culture. Stores once peddled penny candies to sugar-craving children; the song "Pennies from Heaven" was a popular jazz standard from the 1930s, first recorded by Bing Crosby and later by the likes of Frank Sinatra and Billie Holiday; and millions of Americans carry around a "lucky penny." Also, the word "penny" shows up in numerous expressions, including "pennypincher," "a penny for your thoughts," and "a penny saved is a penny earned," which is most commonly attributed to U.S. founding father Benjamin Franklin. Indeed, it was Franklin himself who designed the first penny. In 1793, using a six-pound batch of copper delivered by Paul Revere, the newly established U.S. Mint in Philadelphia, Pa., created the nation's first

batch of one-cent and half-cent coins. Initially, pennies were the size of modern quarters and were known as "large cents." Like the half-cent pieces, the original pennies were made of pure copper. Those pure-copper pennies would not last, however. In 1837, the U.S. Mint began making pennies and halfpennies from bronze, a copper alloy. (Half-pennies were eventually eliminated as a form of currency in 1857, with minimal public outcry.) Save for a brief period during the mid-19th century, and again during World War II (1939-45), pennies remained bronze for the following 125 years. Within that time period, Congress commemorated the 100th anniversary of the birth of President Abraham Lincoln (R, 1861-65) by establishing that his likeness be imprinted on every penny minted in the U.S. Later, for the 150th anniversary of Lincoln's birth, an image of the Lincoln Memorial replaced the previous "wheat ears" design on the back of the penny. In 1962, the one-cent piece began to be manufactured from a mixture of copper and zinc, rather than bronze. Those copper-and-zinc pennies kept being minted until 1982, when the U.S. Mint started phasing into circulation pennies made nearly entirely from zinc. Indeed, the only copper remaining in pennies minted after 1982 is found on their thin copper coating, used to give the coins their trademark reddish-brown shine. Pennies continue to be made nearly entirely of zinc. Efforts to Eliminate the Penny From Circulation In recent years, various politicians, economists and organizations, deeming the penny cumbersome and wasteful, have suggested that the U.S. eliminate the one-cent coin entirely. Several politicians, in fact, have drafted legislation that would do just that. In 1989, for example, three separate bills proposing the penny's elimination were brought before Congress. The most prominent of those bills was sponsored by Rep. Jimmy Hayes (D, La.). Hayes's bill stipulated that the penny should be eliminated and that all cash transactions be rounded off to the nearest nickel. The bill sparked a national debate over the future of the penny. Rallying to the penny's defense was a newly formed nonprofit organization, the ACC. Funded largely by the zinc industry, the ACC extensively promoted the penny by issuing press releases and sponsoring "penny drives"--fund-raisers for various charities in which people were encouraged to donate their loose pennies. Those fund-raisers clearly illustrated the penny's usefulness, according to the ACC. Hayes's bill died in Congress in 1990, after which the ACC briefly became dormant. Then, in the mid-1990s, Congress held a series of hearings to discuss the future of money in the Internet age. Again, the elimination of the penny was a topic of debate. The ACC reemerged to promote the benefits of retaining a one-cent coin. Ultimately, another bill proposing to eliminate the penny died in 1996 without having been voted on. In 2001, Rep. Jim Kolbe sponsored a bill called the Legal Tender Modernization Act. Like Hayes's bill from 1989, the Legal Tender Modernization Act proposed that the one-cent coin should be eliminated and that cash transactions for goods and services be rounded off to the nearest five-cent increment. Kolbe's proposal also prohibited any future redesigns of the $1 bill, and suggested that the U.S. Mint work harder to promote the rarely seen $2 bill as a viable form of currency. Supporters of the penny, including ACC members, noted that Kolbe's home state of Arizona was one of the largest copper producers in the U.S. According to that state's Department of Mines and Mineral Resources, Arizona's copper industry annually produced roughly $3 billion worth of copper. The penny's supporters said that Kolbe, therefore, had a vested interest in abolishing the penny, because it would increase demand for nickels, which are 75% copper. They also criticized Kolbe for apparently trying to phase out the paper $1 note, which would increase demand for the 90%-copper $1 "Sacagawea" coins, introduced in 2000. Kolbe's 2001 bill, like Hayes's bill, was not voted on. It was referred to a House subcommittee, where it languished and eventually died. In 2001, when the cost of producing a penny was roughly 0.8 cents, the U.S. Mint was still turning a profit on penny production. In the years following the defeat of Kolbe's initial penny-related bill, however, the price of zinc, as well as of many other metals, increased sharply. Zinc's price tripled between late 2003 and early 2006. In May 2006, the U.S. Mint announced that, by the end of the year, the cost of producing a single penny--factoring in miscellaneous expenses such as labor and transportation--will have increased to 1.23 cents. Similarly, the production costs for a nickel will rise to 5.73 cents, Mint officials said. Consequently, the U.S. Mint, which in 2005 made a $730 million profit in coin production, stands to lose $45 million in 2006 due to the increased cost of making pennies and nickels. (All coins made by the Mint are purchased by the U.S. Federal Reserve at face value.) According to the Mint, it has made approximately 6.7 billion pennies and 1.2 billion nickels in 2006 (through September). In 2005, 7.7 billion pennies and 1.7 billion nickels were produced.

In July 2006, Kolbe again introduced a plan to eliminate the penny from circulation. In a bill entitled the Currency Overhaul for an Industrious Nation (COIN) Act, Kolbe cites the rising price of zinc, as well as the general "uselessness" of the penny, as reasons for eliminating the one-cent coin. "The penny has been a nuisance for years," Kolbe said. "But now that the cost of a penny exceeds its value, the landscape of the debate has completely changed." The COIN Act retains much of the language of the Legal Tender Modernization Act, including plans to increase production of the $2 bill and the $1 coin. Members of Americans for Common Cents have once again criticized Kolbe's idea to eliminate the penny, arguing that it is still a bad idea despite the rising cost of zinc. They maintain that the penny is still useful, and that eliminating it would be a radical step. Opponents of the penny, however, say that, with the coin costing the U.S. more money than it is worth, the need to eliminate it has never been greater. Supporters Tout Penny's Usefulness Supporters of the penny say that eliminating the coin would be a radical and entirely unnecessary measure. Removing low-value coins from circulation is an extreme maneuver typically associated with developing countries seeking to intentionally degrade their currency and create inflation, they say. The U.S. would be foolish to mimic that strategy simply because some people consider the penny to be a nuisance, supporters assert. "There has to be a pressing need to change what we have now," says Paul Weller, the executive director of the ACC. "And there is no pressing need to eliminate the penny." Backers also maintain that the U.S. public does not want to see the penny follow the half-cent coin into extinction. Typically, public opinion polls show that a majority of Americans support the penny and say they find it to be useful. A June 2006 USA Today/Gallup poll, for example, found that 55% of Americans believe pennies are "useful," opposed to 43% favoring the coin's demise. The same poll found that 76% of Americans pick up pennies they find lying on the ground. That statistic epitomizes Americans' attachment to the coin, supporters assert. Indeed, many backers contend that the U.S. and the penny have a rich shared history. The penny has been around, in one form or another, nearly since the U.S.'s independence from Britain. Therefore, supporters maintain, Americans have a strong emotional attachment to the coins. The penny's infiltration of popular culture reflects that degree of attachment, supporters say. Many of the penny's critics have hidden agendas and vested interests in promoting the elimination of the one-cent coin, supporters argue. Backers point out that Kolbe, who is at the forefront of the antipenny campaign, has a considerable interest in the future of the nickel, which is mostly made out of copper. Kolbe's home state, Arizona, is one of the leading copper producers in the U.S., they point out. Weller describes Kolbe's attempts at removing the penny from circulation as "special-interest legislation at its worst." Bills such as the Legal Tender Modernization Act and the COIN Act would "benefit the metals industry that wants to make dollar coins and nickels at the expense of ordinary consumers," Weller continues. Some supporters of the penny argue that Kolbe's plan to round transactions to the nearest nickel will make many goods and services more expensive. Raymond Lombra, an economist at Pennsylvania State University in State College, says that, if Kolbe's plan were put into practice, nearly all cash transactions would be rounded up, since the price of most retail items ends in an 8 or 9 ($9.99, $14.98, etc.). Indeed, as many as 93% of cash transactions would be rounded up, costing Americans roughly $600 million each year, Lombra says. Supporters of the penny refer to that $600 million as a "rounding tax." Supporters further argue that the penny's extinction would most negatively affect less-fortunate Americans. Many people collect pennies and other loose change in a jar, using the coins as an emergency financial resource, supporters say. If pennies were eliminated, many of the nation's poorest individuals and families would no longer have that option, backers assert. Additionally, many charitable organizations heavily rely on contributions made in the form of small change, especially pennies, proponents argue. "A lot of people are free with the loose change in their pockets, especially pennies, but they tend to hang on to their dollar bills," says Lee Harrington of the AIDS Emergency Fund, a San Francisco-based charity. "If the small change we get was reduced, that would mean people who need it wouldn't get grants." Harrington says that the AIDS Emergency Fund collects about $50,000 a year from its donation jars, mostly in coins. And many other charities have sung the praises of the penny, supporters say. The United Nations Children's Fund (UNICEF) reported in 2004 that nearly $1 million of its $4.7 million donation-drive proceeds consisted of coins. Also, the 2005-06 Penny Harvest, held by the New York-based charity Common Cents,

raised more than $655,000 in pennies alone. According to the organization's Web site, the annual Penny Harvest is the "largest child philanthropy program in the United States." Pennies a Waste of Time and Money, Critics Assert Critics of the penny say that, given the rapidly rising cost of zinc over the past several years, pennies are now literally more trouble than they are worth. It simply does not make sense to continue creating millions of pennies a year when the U.S. is losing money from them, critics maintain. "It's a waste of good effort [and] good metal" says William Dunkelberg, the chief economist of the National Federation of Independent Business, an advocacy group that represents small business owners. Opponents maintain that the U.S. public is largely indifferent to pennies, and would easily adapt if they were eliminated. Critics point to a December 2002 public opinion poll, conducted by the General Accounting Office, that shows that 58% of Americans, when they receive pennies as change, choose to "accumulate or save them in a piggy bank, jar [or] drawer." Indeed, studies indicate that nearly $10 billion in change is currently out of circulation, sitting unused in piggy banks across the U.S. Critics say that since people do not even use pennies, there is no reason to keep minting them. The U.S.'s insistence on retaining the penny is costing the economy dearly, some critics assert. The National Association of Convenience Stores has estimated that an average of 2.25 seconds is spent handling pennies during each cash transaction. Using that figure, Jeff Gore of the group Citizens for Retiring the Penny has calculated that $15 billion is lost each year simply by dealing with pennies at the cash register. Other critics point out that the average wage-earner in the U.S. makes about one cent for every two seconds he or she works. Therefore, they say, the time spent handling pennies at the cash register effectively cancels out the amount of time spent earning a penny. "The penny in some sense is becoming a waste of time for people," says Robert Whaples, a professor of economics at Wake Forest University in Winston-Salem, N.C. Critics also maintain that many countries have eliminated their lowest-denomination coins without any problems. Both Australia and New Zealand have long been without pennies, and have managed just fine, opponents say. Certain countries in the European Union choose not to operate with the one- or even twocent Euro coins. Even the U.S.'s overseas military bases eliminated the penny during the 1980s, due to high transportation costs, they point out. Critics say that those bases function just as smoothly without the penny. Opponents also note that many of the penny's staunchest supporters, such as the ACC, are in fact fronts for the zinc industry, which contributes millions to their cause. "There really is a pro-penny lobby," Gore says. "They've got a nice Web site and look like a nonprofit. But the zinc industry has sponsored this lobby group to scare people. Sometimes I feel outgunned." Meanwhile, Kolbe, Congress's most adamant critic of the penny, maintains that he has not been in contact with representatives of his state's copper industry and has no vested interest in the penny's demise. Another reason why the U.S. should eliminate the penny, according to certain opponents, is that it would help clear the way for the $1 coin to replace the $1 bill, which is far less durable. Eliminating pennies would create an extra, unused space in cash registers, which would in turn encourage the use--and increased production--of $1 coins, critics maintain. According to Whaples, switching from paper dollars to coins would save the U.S. nearly $500 million a year due to the coin's greater durability. The idea that U.S. consumers would lose $600 million a year due to a "rounding tax" is absurd, critics claim. Opponents of the penny fault the methodology used in Lombra's study on rounding to the nearest nickel. They say that the study applied only to customers purchasing one item per cash transaction. Since most retail items have prices ending in an 8 or 9, Lombra's study found that a vast majority of purchases would be rounded up to the nearest nickel. But in fact, critics argue, most people buy multiple items, randomizing the final digit on each transaction. Sales taxes, similarly ignored in Lombra's study, also have a randomizing effect on customers' purchases, opponents maintain. Penny Will Likely Survive the COIN Act, Observers Say Kolbe, who turned 64 in 2006, has said that he will retire after his current term ends. If his COIN Act does not pass, it will likely be the final bill to propose the elimination of the penny for quite some time, observers say. No other member of Congress has expressed an interest in eliminating the penny; Kolbe's 2001 Legal Tender Modernization Act fizzled without receiving a single co-sponsor.

Meanwhile, a different coin-related bill was signed into law in December 2005. Originally sponsored by Sen. John Sununu (R, N.H.), the Presidential $1 Coin Act established a new series of coins, to begin in early 2007, that will depict a likeness of each U.S. president in sequence. Each of those coins will be worth a dollar, and a new one will be issued roughly every three months. The act also stipulates that the penny's reverse side will be redesigned for 2009, the 200th anniversary of Lincoln's birth. The new design will feature four different scenes from Lincoln's life, from his birth in Kentucky up to his presidency. Observers say that the Presidential $1 Coin Act virtually guarantees that the penny will remain in circulation through at least 2009, and likely for many years thereafter. Discussion Questions & Activities 1) What do you do when you receive a penny as change? Do you save them? Donate them to charity? Throw them a way? 2) Do you think that rounding off all cash transactions to the nearest nickel would help or hurt consumers? Explain your reasoning. 3) Have you ever used pennies to buy anything? Would you describe them as "useful"? 4) Should pennies be eliminated from circulation? Why or why not? 5) Imagine you are part of a pro-penny or antipenny organization. Write a script for a brief radio commercial in which you try to convince the public that pennies either should or should not be eliminated.