Economist Says Keeping the Penny

PITTSBURGH (AP) â€” Honest, Abe â€” the penny should stay. <br><br>That's the conclusion of an economist who says getting rid of the penny would be a burden to poorer people as prices such as 99 cents

Friday, December 8th 2000, 12:00 am

By: News On 6

PITTSBURGH (AP) â€” Honest, Abe â€” the penny should stay.

That's the conclusion of an economist who says getting rid of the penny would be a burden to poorer people as prices such as 99 cents are rounded up.

Penn State University professor Raymond Lombra, a former senior staff economist at the Federal Reserve Board, said eliminating the penny would create a ``rounding tax.'' Hardest hit would be the 10 million households without checking accounts â€” mainly poorer people, Lombra said.

``There is a widespread assumption out there that there is no cost at all in getting rid of the penny,'' he said. His most conservative estimate was that U.S. consumers would pay an extra $600 million per year in rounded-up costs in a penniless society.

Lombra said Thursday that Americans for Common Cents, a pro-penny group backed by zinc companies, asked for the study and paid for his research assistant. Pennies were once mostly copper but since the early 1980s have been mostly zinc with copper coating.

``I told (the group), `Whatever I find out, you are going to have to live with it, whether you like it or not,''' Lombra said about his study released Monday.

Lombra analyzed the books of a convenience store chain and simulated 5,000 sales of one to three items each â€” batteries, gum and chewing tobacco, for example. In three-fifths of the sales, the sale would be rounded up to the nearest nickel in the absence of pennies, the study said. When just one item was purchased, the price was rounded up 93 percent of the time because many items are priced in amounts ending in 9, such as 99 cents.

Lombra assumed that stores would increase prices ending in 3 or 4 and decrease those ending in 1 or 2.

On the flip side, the nonprofit Coin Coalition is pushing for prices in multiples of five like those in Australia and at U.S. military bases.

``It sounds like he is in the ivory tower of academia and not down in the real world,'' the group's executive director, James Benfield, said about Lombra. ``If you've got a kid going to the big mean retailer and he buys two candy bars for 48 cents, that's 96 cents. And guess what â€” that gets rounded down.''

The coalition, which argued for this year's new dollar coin, is backed by retailers and operators of vending machines and arcade games. Benfield said the United States stopped making half-cent coins in 1857 and managed to survive.

And before you pity the penny, consider the clerks who count them to give change. The 3,200-store Walgreen Co. drugstore chain said its clerks spend 2 seconds per transaction handling pennies.

``It is extremely inconvenient for us to deal with pennies. There is no question that we would like to get rid of them,'' said Robert E. Kahng, the assistant treasurer at suburban Chicago-based Walgreen.

That's just what a lot of people are doing, apparently.

Suburban Seattle-based Coinstar Inc. said it has collected 15.5 billion pennies this year in its 8,000 U.S. machines, which charge 8.9 cents per dollar to convert coins to cash.

The penny remains welcome at the Gas Lite General Store in Copper Harbor, Mich.

``Dealing with pennies is part of retailing,'' Gas Lite co-owner Tish Booth said. ``I've never had a problem with them. They've always been around, and I hope they always will be.''

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On the Net:

Americans for Common Cents statement on pennies at http://www.pennies.org/topten.html

The Coin Coalition's statement on pennies at http://www.coincoalition.com/pennies.htm

Coinstar at http://www.coinstar.com

Raymond Lombra at http://www.la.psu.edu/rgso/lombra.html