Eliminating the penny

There are a lot of complainers about the penny: how it's worthless and should be phased out. I am one of them.

The most commonly proposed solution I read is that some rounding should occur at checkouts. For example, if the bill comes out to be $54.78, it should be rounded to $54.80. That's not a bad idea, but there is a problem. If rounding was done as the last step, there is nothing stopping a retailer from setting prices in such a way that totals are rounded in the retailer's favor -- that is, on every transaction, it just so happens that the customer must round up and pay an extra one to two cents. As an extreme example, consider a pack of gum that the retailer in Texas prices at 44 cents. After sales tax, the gum costs 47.63 cents. This would be rounded up to 50 cents.

Setting the price of gum at 44 cents means that the customer pays for it 50 cents, while setting the price at a penny lower means that the customer pays only 45 cents. The retailer can force an additional five cents out of a customer by changing an advertised price by a penny.

"It's just five cents; what's the big deal?" But how many customers go through the checkout lines of Walmart in one hour nationwide?

I propose a win-win -- or at least a win-neutral -- solution to getting rid of the penny. As a bonus, this solution does not require any government intervention. Are you ready for it?

Retailers should simply set prices such that, after sales tax, they end in a 0 or a 5.

This is possible because sales tax is a simple percentage of the subtotal. Thanks to the associative and commutative properties of addition and multiplication, there is no need to take into account all permutations of the store's inventory: the store simply needs to set individual prices such that x ends in 0 or 5, and any combination of such products will automatically have the same property.

Of course it is still possible for the retailer to adjust prices to increase profit (simply by always raising the price to the nearest 0 or 5), but now there is no asymmetry of information. Now the customer sees the exact price before deciding whether to put the item in the cart and the store cannot play dirty rounding tricks.

My solution will not work for items that are sold by weight, unless scales are modified to weigh in increments of 0.05 lb or similar as opposed to the standard 0.01 lb.

For items that are sold by weight, I don't mind the rounding being done at the register, for two reasons. First, there is a large amount of uncertainty involved with most sold-by-weight products. Whether it's cutting slabs or slices of meat or filling a cup with nuts, it's much more difficult to consistently produce packages that round in the store's favor. Second, the customer has at least some input when it comes to sold-by-weight products. If the customer is so anal-retentive that he doesn't want the store to make two cents of profit on his purchase (and hopefully I am not one of them), he can whip out a pocket calculator and figure out precisely what set of weights will yield a post-tax price in the customer's favor. Thus, items that are sold by weight are not significantly subject to a store's malicious adjustment of prices in the store's favor.

If a retailer can meet my conditions, then I claim that it's a definite win for customers and at worst a wash for the retailer.

So if there are so many penny-haters, and my proposal seems to work, and my proposal doesn't require anything more than a willing retailer and appreciative customers, why hasn't anyone done it? Or has someone?

Lastly, perhaps there should be a coalition, called something like "Penniless & Proud." Those stores that commit to eliminating the penny (through my proposed system or some other fair system) are rewarded with a special logo that they're authorized to display on the doors and in commercials. Once there is critical mass, economic pressures on the remaining retailers will virtually eliminate the penny from circulation.

Do you see any flaws in my proposal? Do you know of a better way? Do you know of any stores that have eliminated or reduced the circulation of the penny?