It’s all so cent$less

(WARNING. MINOR RANT.) Pennies made the news again. Last night they were talking about them on Nightline: If Laws Change, ‘Penny Hoarders’ Could Cash in on Thousands of Dollars

There are two important points to learn:

  1. The old saying “a penny saved is penny earned” is absolutely correct for you can make a lot of money collecting pennies!
  2. Apparently our increasingly corrupt and inefficient government is actually, seriously looking at yet another way to sneakily pick our pockets, all the while claiming it will “save money.” They must think we are sheep who are too “dumbed down” to think it through and challenge them. Are they correct?

Well, for those who are new to my blog, or who may not have read it before, I did the easy math and wrote a short article with a simple chart showing what would really happen. Hold on to your wallet and click here for that post: Eliminating pennies makes no cents and no $en$e.


Eliminating pennies makes no cents and no $en$e

My thoughts for your pennies.

Have you heard the idea that eliminating pennies would save the government money and the people a little hassle? Every few years some person or group (currently it is Canadians) starts declaring that the penny should be “done away with” because of manufacturing costs and the petty annoyance factor. This is very “knee jerk” and reveals to me that those who agree with it have NOT given it any real thought or they wouldn’t have suggested/agreed with the idea. The other possibility is that (based on what I am about to show you) there are some people who EXACTLY understand the financial implications, in which case those people think you are stupid enough to mindlessly accept it (sounds evil to me), which is a BIG MI$TAKE!

Superficially, it seems simple: the cost of all items would now end in either 5 or 0, but running some simple calculations quickly reveals that it not only solves NO problems but, in fact, creates bigger ones (i.e. will $eriou$ly co$t you!). Look at these two hypothetical examples:

Cost: 20.20 Cost: 20.75
 Sales Tax Sales Total Sales Tax Sales Total
1% 20.40 1% 20.96
2% 20.60 2% 21.17
3% 20.81 3% 21.37
4% 21.01 4% 21.58
5% 21.21 5% 21.79
6% 21.41 6% 22.00
7% 21.61 7% 22.20
8% 21.82 8% 22.41
9% 22.02 9% 22.62
10% 22.22 10% 22.83

It quickly becomes obvious that unless taxes (and even S/H) are eliminated (like THAT would ever happen!) you still get numbers ending in something other than 5 or 0. The answer? “Rounding,” obviously. But don’t be naïve, given the nature of taxes that would ALWAYS be up (in spite of mathematical rules) for NO government would ever round down and relinquish those extra cents (those are TAXES, remember?).

However, government uses projections to estimate revenue and this would add substantial uncertainty and complexity. How could it accurately track this (and avoid “appropriation” by merchants?) since actual sales figures and taxes still follow true mathematical rules? I know! Hire more people, creating bigger government, thus requiring more taxes!

(Wait a minute, I thought the supposed point of eliminating pennies was to SAVE money!)

Depending on how many individual purchases one makes, each individual could spend up to a dollar a day in “rounding” charges. Figured annually, just this portion of the problem this really adds up, hurting those who can least afford it. This would, in essence, become an even more devious form of (hidden) taxation without representation.

Using reasonable, real world prices there is no tax rate that consistently gives a result ending in a 5 or 0. So what about making prices in whole numbers? (Oh sure, we ALL want the cost of goods and services to go up…NOT!) Well, going with that idea for the moment, there are still  problems:

Cost: $21.00 (nope…) Cost: $25.00
Sales Tax Sales Total Sales Tax Sales Total
1% 21.21 1% 25.25
2% 21.42 2% 25.50
3% 21.63 3% 25.75
4% 21.84 4% 26.00
5% 22.05 5% 26.25
6% 22.26 6% 26.50
7% 22.47 7% 26.75
8% 22.68 8% 27.00
9% 22.89 9% 27.25
10% 23.10 10% 27.50

Even an “innumerate” (a “numerically illiterate” person) can now see that the only “simple” solution would be to make every purchase be a multiple of 5 or 10 dollars. Now there’s inflation for you! Just imagine how that would work with buying groceries (milk, bread, eggs, gum, snacks, candy, beverages)…it staggers the mind and horrifies the soul (and wallet)! Look out middle class, working poor, and others!

But wait, there’s more…what about the financial markets? How can you eliminate pennies but still permit financial calculations that create answers that require their existence? Think of interest: on savings accounts, other investments, mortgages and loans. How much more are you willing to give up or pay? For consistency, we’d need to eliminate cents even on paper, otherwise when people close accounts or cash out bonds or stocks and want it in cash, what happens to the extra cents? People get testy when they don’t get all their money, especially when this is a consistent practice. They feel (rightfully) cheated.

I hope you’ve begun to grasp the ripple effect and the resulting complexities that would boggle people’s minds and cost the government untold millions in public forums, lawsuits, developing financial strategies, new regulations, and more (unnecessary) government employees. More people would be angry more often at being forced to pay more or, if rounded down, business and government would clamor about “lost revenue.”

The cost of eliminating “inconvenient” pennies would generate more expense and trouble than their manufacture and “inconvenience.”

A better solution? Let people give them away – charities (and others more frugal) gladly take them.

So, in honor of pennies, here is Ol’ Blue Eyes with his song about them. (Oh, and tell your Canadian friends about this article!)

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