When It Comes to the Penny, Washington Makes No Sense

It costs more to make pennies than they're worth, so why bother?

By David Morris, Senior Political Editor, The Kiplinger Letter

If you ran a business that sells a product for less than it costs to make, you’d soon be broke.

So why is the U.S. government still in the business of making pennies? Each one of those tiny tributes to Abraham Lincoln costs 1.62 cents to manufacture. In other words, if you had the proper equipment to melt pennies, the raw materials would bring a 62% return on your investment, minus costs -- and ignoring the pesky little fact that melting legal tender is illegal.

The nickel is in the same boat. According to the U.S. Mint, it cost Uncle Sam 5.79¢ to make each 5¢ piece in 2009. Dimes, quarters and dollars are much better bargains, costing much less to produce than their face value.

The cost fluctuates from year to year, based on the price of the metals used in each coin. The costs of producing pennies (2.5% copper, 97.5% zinc) and nickels (75% copper, 25% nickel) have exceeded face value since 2006. The worst year so far was 2007, when a penny cost 1.67¢ to produce and a nickel cost nearly a dime -- a whopping 9.5¢.

So with all the talk about the deficit and efforts to cut government costs, wouldn’t it seem logical to phase out the coins at the low end of the face-value spectrum? Or at least change their composition to more affordable metallic mixtures? Logical to you and me, perhaps, but not to most members of Congress. Occasional efforts to do away with the penny are about as popular as suggestions that lawmakers take a pay cut.

In July, the director of the Mint added his two cents to the coin cost debate, urging lawmakers to designate the task of deciding the metal mixes in coins to the Treasury secretary. Congress, defying the woe-is-us forecasts of election year gridlock, moved quickly to send a message to the Mint’s main man -- not so fast, Buster.

The Coin Modernization, Oversight and Continuity Act was introduced Sept. 22 by Rep. Melvin Watt, D-N.C., and was approved by the House just one week later. The Senate added its approval at the end of November, and President Obama signed the bill Dec. 14.

The law requires biennial reports to Congress by the Treasury secretary about the cost of producing and circulating coins. It also allows the Treasury boss to recommend changes in metal content or in the amount of coins produced. But the measure makes clear that only Congress can make such fateful decisions.

Anyone old enough to qualify for AARP membership remembers when a penny could actually buy something. Indeed, the best value of my childhood was two Red Hot Dollars -- a gummy candy -- for a penny. But that was many years and lots of dental procedures ago. (My nickel packs of baseball cards, which contained countless Mickey Mantles, would have been an even better value. Those cards of the New York Yankees slugger would be worth thousands today if Mom hadn’t tossed them when I “grew up,” but that’s another story.)

Speaking of long ago, when was the last time you saw a vending machine that accepted pennies? If there’s one out there somewhere, it should be packed up and shipped to the Smithsonian National Museum of American History.

Do people even pick up a stray penny anymore? Why bother if you’re just going to toss it aside when you get home?

In a recent report, we forecast the declining use of cash over the next decade. Congress can get out in front of this parade by abolishing the penny. It has outlived its usefulness as anything other than a collector’s item or something to help fill empty jars.

Sure, losing those Abes -- doesn’t have quite the same ring as Benjamins, does it? -- would take some getting used to. It would cost you a bit more to make a wish at a fountain, but what doesn’t cost more these days?

We’d have to inflate some common sayings, too, but that shouldn’t be too difficult.

A nickel for your thoughts?