Policy Documents

Research & Commentary: U.S. Postal Service Reform

December 29, 2011

The United States Postal Service is one of the best-liked agencies of the federal government, enjoying near-universal approval of the public. But it is in deep trouble. Over the past four years the Postal Service has lost billions: $2.8 billion (2008), $5 billion (2009), $3.8 billion (2010), and $5.1 billion (FY 2011). The Postal Service is nearing its statutory debt limit of $15 billion, and Postmaster General Patrick Donahoe recently warned legislators and taxpayers that losses will be more than $5 billion for 2012. Without significant reforms or a bailout transferring billions of general-revenue dollars to postal coffers, the Postal Service cannot survive.

Although the Postal Service has the advantage of a legal monopoly on first-class and standard mail—the law requires private companies to charge higher rates—it suffers from a legal requirement to provide mail services to all Americans and charge the same fee for first-class mail everywhere. It also must maintain thousands of local post offices whose locations are determined by politics instead of efficiency. The Postal Service lacks flexibility because Congress must approve every major decision that could cut costs, such as ending Saturday mail service or closing distribution centers. Finally, the Postal Service has very high employee benefit costs compared to private companies and the rest of the federal government.

Most pro-market thinkers support reforms that would gradually end the Postal Service’s monopoly while giving it more freedom to compete with private carriers. Privatization advocates such as the Cato Institute argue competitive pressures would give consumers more options from other delivery companies while compelling the Postal Service to improve its services or face closure.
Reform opponents argue much of the current Postal Service deficit results from congressional mandates regarding postal worker retirement benefits. The 2006 Postal Enhancement and Accountability Act required the Postal Service to prefund its retiree health benefits 75 years into the future at the rate of $5.5 billion a year over a ten-year span.

The following articles examine Postal Service reform from a market perspective.

Downsizing the Federal Government: Privatizing the U.S. Postal Service
Tad DeHaven of the Cato Institute discusses the problems of the U.S. Postal Service and reports on some recent postal reforms abroad. He concludes taxpayers, consumers, and the overall economy would gain from reforms to privatize the USPS and open mail delivery to competition.

Privatizing the U.S. Postal Service!
Michael Crew and Paul Kleindorfer argue for privatization of the U.S. Postal Service and examine scenarios for the operation of a privatized postal service.

Save, Don’t Kill, the U.S. Postal Service
Writing in the Washington Post, Katrina vanden Heuvel argues the U.S. Postal Service is a national asset that should not be privatized. Instead, she says, reforms should focus on innovation and making the USPS more competitive.

Dear USPS: Consider Privatizing
Jia Lynn Yang of CNN Money examines postal reform and privatization in several countries and recommends privatization for the U.S. Postal Service.

Timid Steps Toward Postal Reform
American Enterprise Institute Adjunct Scholar R. Richard Geddes examines proposals for postal reform currently before Congress. He argues that although the bills fail to address some important issues, they would improve the process under which the Postal Service is regulated, define clearly the delivery monopoly, enhance the transparency of the Postal Service, and help restrict it to its core mission of providing universal delivery service.

Senate Postal Reform: A Lot of Money, Little Change
James Gattuso of The Heritage Foundation assesses recent proposals for postal reform. Gattuso argues the plans take a few steps in the right direction but fall short of the comprehensive reform that is needed.

The ‘Big Lie’ About Postal ‘Bankruptcy’
The National Association of Letter Carriers argues the bankruptcy problems the Postal Service faces are unfairly being caused by the requirement to prefund future retirees’ health benefits.

Issa Introduces Postal Reform Act
In a press release, U.S. Rep. Darrell Issa’s office describes the Postal Reform Act, legislation that would create a Postal Service Financial Responsibility and Management Assistance Authority with the mandate of restructuring the Postal Service and reducing costs in order to bring the institution back to fiscal solvency when the Postal Service goes into default to the federal government. Once the Postal Service is financially healthy, the authority would be disbanded.

Restructuring the U.S. Postal Service
Writing in the Cato Journal, Robert Carbaugh and Thomas Tenerelli discuss the economic problems of the U.S. Postal Service and possible structural changes that could keep it solvent.