Recent reports about penny costs have led some to ask if the government would save money by eliminating production of the penny. So, are we better off financially without the penny? The answer is “no” according to a recent report by Navigant Consulting, Inc. Click here to see the full report

Navigant found the government would actually lose money without the penny.  How?

First, the Mint’s fabrication and distribution costs include fixed components that will continue to be incurred whether or not the Mint produces the penny.  Navigant estimates this fixed component at $13 million in FY 2011. Plus, there is $17.7 million in Mint overhead allocated to the penny that would have to be absorbed by the remaining denominations of circulating coins without the penny.

Second, under current Mint accounting, the nickel costs eleven cents to manufacture. In response to a 2006 question from the Subcommittee, the Mint put forward a scenario where nickel production doubled without the penny. It’s hard to see how you save money by making more nickels that are losing more money. The data bears this out. Applied to FY 2011 cost and shipment data, the Mint would have incurred an additional net cost of $40.4 million without the penny last year.

Navigant concludes that with existing fixed costs, and the nickel substitution scenario outlined by the Mint, eliminating the penny would likely result in increased net costs to the Mint of $10.9 million, relative to the current state.

SUMMARY POINT

Penny elimination would not eliminate government losses, and will actually increase the overall loss to the Mint due to increased production of the nickel and ongoing Mint overhead costs. Moreover, consumers would be hit with a “rounding tax”, the last thing Congress should consider with our current fragile economic climate.