Fails to Capture Costs Associated with Eliminating the Penny
A Government Accountability Office (GAO) Congressional advisory report released on March 21 incorrectly estimates the budgetary impact from changing U.S. currency.
The Senate Budget Committee asked the GAO to examine three issues: 1) the benefit to the government of replacing the $1 dollar note with a $1 coin; 2) the potential savings to the government from suspending penny production; and, 3) the potential savings from changing the metal composition of the nickel.
The GAO’s most glaring error was estimating $250 million in government savings would be yielded over seven to ten years if the Mint were to suspend penny production. Other recent studies have found the exact opposite – suggesting the government will actually lose money if the penny is eliminated. The GAO either underestimated or completely missed three important factors.
First, a move to suspend or eliminate the penny would have a massive negative impact on the US Mint’s cost structure. For example, many overhead costs would remain and need to be absorbed by other coins.
Second, there would be greater demand for expensive nickels which cost well over 5 cents to produce and would result in additional costs. The Mint says penny elimination will likely double nickel production. “It’s hard to see how you save money by making more nickels that are losing more money,” said Americans for Common Cents Executive Director, Mark Weller. The data bears this out. According to Navigant Consulting, based on these ongoing overhead costs , the Mint would have incurred an additional net cost of $40.4 million without production of the penny.
Third, Coinstar, the supplier of coin-counting solution kiosks, estimates a $295 million real annual cost to taxpayers if the penny is suspended or eliminated. Coinstar examined the velocity or frequency that coins circulate through the money system in reaching this conclusion. Without the penny, more silver coins will need to be minted. Coinstar also says that, without the penny, the average cost per coin minted increases. Coinstar’s one year government cost of $295 million dwarfs the GAO’s ten year estimate of $250 million in estimated government savings through penny suspension.
The GAO acknowledges an early influx of a large amount of coins into circulation, not just pennies, if the penny were suspended. The GAO correctly notes this influx would decrease the need for future production of silver coins. According to the Mint, the estimated costs from idle production capacity would be a whopping $3 billion over 7 to 10 years.
According to Americans for Common Cents, penny suspension would not save the government money. Rather, the government will actually lose money due to ongoing Mint overhead costs, increased production of the nickel, and increased costs to produce more silver coins.