Eliminating the penny and rounding cash purchases to the nearest nickel could cost American consumers over $600 million a year, opponents of the plan say.
In addition, federal spending could rise $1.5 billion by 1995 and over $2 billion annually after that due to the effect of the "rounding tax" on the Consumer Price Index, according to the Washington-based Americans for Common Cents.The group wants Congress to withdraw a bill introduced in the fall by Rep. Jimmy Hayes, D-La., which would do away with the penny. It raised its arguments at a Senate Banking Committee hearing last week which debated a proposal by Sen. Pete Domenici, R-N.M., to create a new dollar coin.
The Domenici bill calls for a study by the Treasury Department on whether it is wise to phase out the penny and the 50-cent coins and institute the rounding of cash sales to the nearest 5 cents.
Raymond Lombra, an economics professor at Pennsylvania State University, who represented the group at the hearing, stressed that eliminating the penny is regressive because it would most hit the poor who generally pay cash for purchases.
Rounding up payment to the nearest nickel would occur in cash purchases 70 percent of the time due to the way retail items are currently priced, Lombra said.
Citing a recent Gallup poll, Lombra noted about three out of four surveyed believed merchants would raise their prices to cover for any loses from rounding down receipts to the nearest nickel. About six in ten also said confusion might reign in the cash register as buyer and seller figure out exactly how much should be rung up.
The Coin Coalition, a group representing vending machine operators and similar industries as well as copper and brass fabricators, noted that a paper dollar, though costing less than three cents to produce, was worn out and unusable after 17 months while a coin, minted at six cents each, would last for 30 years.