President Obama’s new budget shows savings of $50 million annually by curtailing the production of unwanted $1 coins. As a former budget director for President Reagan, I know first-hand how difficult it is to cut spending and how important it is to guard against faddish programs that claim savings but actually add to federal spending and to the deficit – which is what you’d get if you let Congress replace the dollar bill with the dollar coin.
The latest proposals to do just that are all the more vexing, given that consumers overwhelmingly reject the dollar coin.
Proponents of the coin have been quite candid about this, saying the only way to get people to adopt the coin is to take the dollar bill out of circulation. Forcing people to use the dollar coin would be a tax on consumers. Moreover, from the government’s standpoint, the only justification for the coin is the profit it makes on the coins, which, of course, is really a tax on consumers.
In February, the Government Accountability Office (GAO) announced that converting to a dollar coin would cost taxpayers $531 million over the first 10 years. But proponents of the change claim it would actually save the government money. Why is that?
Right now, some 1.5 billion dollar coins are collecting dust in vaults at the various Federal Reserve Banks–enough to last a decade. So the Federal Reserve is planning to use more taxpayer money to construct a new facility in Dallas simply to guard them and store them.
Coins end up in drawers, jars, and all the other places people put them when they empty their pockets at the end of the day. So, people would require about one-and-a-half dollar coins for every dollar bill they were forced to give up.
Even though the dollar coin is more expensive to the government in the long run, by forcing people to use coins the government would reap an additional 50% profit on the coins it sold to the public.
The problem here, of course, is that what is a profit, or savings, to the government is a tax on consumers – and a regressive tax at that, since poor people deal more in cash than wealthier individuals.
Polls indicate that the American people are unalterably opposed to replacing the dollar bill with a dollar coin. The GAO itself commissioned a poll in 2002 which found that 64 percent of the public opposed the idea. A 2006 Gallup poll found that 79 percent opposed the idea, and even when they were asked to assume that conversion would actually save the government half a billion dollars per year, 64 percent of the public still opposed the idea. More recently, Frank Luntz commissioned a poll that found 83 percent of Americans favor keeping the dollar bill over the dollar coin.
Right now, some 1.5 billion dollar coins are collecting dust in vaults at the various Federal Reserve Banks. This supply is enough to last a decade, so the Federal Reserve is planning to use more taxpayer money to construct a new facility in Dallas simply to guard them and store them.
Senators Scott Brown and John Kerry recently introduced the Currency Efficiency Act (S.1624), designed to address inefficiencies in our currency system in a targeted way. For example, the Act would prohibit the Secretary of the Treasury from issuing additional dollar coins so long as supplies are plentiful. This is smart policy.
Because there are so many excess dollar coins, the Administration has ordered the U.S. Mint to quit making new ones. As for the old ones, the Federal Reserve Banks keep sending them out, and consumers keep sending them back.
The American people are telling their elected officials they don’t want to give up their dollar bills. Are our elected officials listening?
Jim Miller served President Reagan as director of the U.S. Office of Management and Budget (1985–1988) and prior to that, as chairman of the Federal Trade Commission (1981–1985). He earned his Ph.D. in economics at the University of Virginia and is an advisor to Crane & Co.