Penny Debacle

Stop the Panic

Many are making shortsighted takes with the “end of the penny”. I doubt it is truly the end, as it could come back in the form of steel or vinyl. Why? Because of sales tax. Add a 7 percent sales tax to a $13 purchase, and it comes out to be $13.91, and this all comes down to tax transparency in accounting. Without the penny, the adjustment lacks transparency.

Many grocery stores will easily get around this as their items are not subject to the sales tax, but you will end up seeing items at $3.95 or $4 instead of $3.99. However, merely one taxed item, such as beer or wine, would end up with a cent problem.

Here is what I expect to happen. First, banks and credit unions, and other institutions, will start offering buy-back programs: bring in a penny, get two pennies back, or similar programs (https://www.yahoo.com/news/articles/giant-eagle-penny-buyback-program-003052570.html). This has been done in the past, which is why there exist penny hoarders to this day.

Second, many places will end up with penny dishes at the counter and ask people to add to it, while others will take comfort in obtaining the penny difference.

Third, some establishments may go to cashless payments and provide incentives for being cashless. However, such places should direct people on how to buy prepaid cards so such transactions can be made. Also, cashless spending tends to reduce price sensitivity, causing many to pay more than they intended. Sadly, many such cards will have amounts left over and unused.

Fourth, retailers will look to offer a round-down benefit. Spend a specific amount of money, they will round it down, but if it is less than the expected amount, they will round it up. Also, if you’re part of the retailer’s loyalty program or download their app, they will round it down. They will likely do this for welfare consumers as well.

Fifth, some retailers may automatically round-up, if exact payment is not paid. This will result in malicious pricing. $3.91 is the charge, but if you have no penny, they round it up to $3.95. Cash paying consumers will learn it helps to have a penny in hand. Yet, maybe they will charge $3.93, knowing few have such pennies, resulting in a charge of $3.95.

So why do I think the penny will come back? Because it resolves an accounting problem (https://time.com/7333864/penny-production-circulation-businesses-change-cost/). The real cost problem with pennies is the public was rarely persuaded to turn the pennies in. In fact, people were never encouraged to put any coins back in circulation. If they did, the US Mint would not have to print so many coins.

I pick up pennies all the time, and sometimes it is not a penny but a nickel, dime, or quarter. It is not much, but it is tax-free money, and putting it back in circulation helps the economy.