Time to Eliminate The Penny From The U.S. Coinage System: New Evidence

The heart of Lombra's analysis is his estimate of the losses to consumers if the penny were eliminated and cash prices were rounded up or down to the nearest nickel. Using data from the price book of a typical convenience store, he shows that the last digit for over eighty percent of prices is a nine. Simulating 5000 purchases of from one to three items across the full spectrum of the 3585 items in the price book, he estimates that 60 percent of the transactions result in rounding upward if three items are purchased and up to 93 percent are rounded upward if one or two items are bought. As a lower bound, if half of the 106 billion annual consumer transactions were made with cash and 60 percent were rounded upward, consumers would col- lectively lose $318 million per year. As an upper bound, if 83 percent of transactions use cash and 93 percent have prices rounded upward, the loss to consumers would be $818 million annually. The fi rst limitation of this analysis is that it is unknown how many items (and in what combinations) consumers purchase from convenience stores. The "rounding tax" is lower as more items are purchased, but information on how many items are purchased was unavailable to Lombra and many purchases involve more than three items. More problematically this calculation assumes that all such transactions are not taxed. Chande and Fisher's (2003) simulations show that the "rounding tax" es- sentially disappears in Canada where all items are taxed. Convenience stores' goods are taxed in the United States, too. According to the Federation of Tax Administra-