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284 IRET Congressional Advisory 1 (2012)

handle is hein.taxfoundation/iretcgadv0281 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. June 26, 2012 Advisory No. 284 Why The U.S. Postal Service Is In Greater Financial Trouble Than Most Foreign Posts - The Role of Postal Rates Executive Summary Postal services throughout the world are losing sales to electronic alternatives and the after-effects of the Great Recession. Nevertheless, most foreign posts in developed nations that report their financial results to the Universal Postal Union (UPU) are profitable. Many occasionally lose money, but few stay in the red year after year. The U.S. Postal Service, in contrast, has lost money continuously since 2007 - $25.3 billion of red ink through 2011 - and it warns of steeper losses ahead. What factors explain why USPS has become one of the developed world's sickest postal services financially? Earlier papers examined two crucial differences: government micromanagement, which deprives the Service of important cost control tools commonly relied on by foreign posts, and the Service's generous and very expensive retiree health benefits. A later paper will consider whether USPS would be financially stronger (or weaker) if it emulated many foreign posts and diversified into nonpostal businesses. This study investigates the role of postal pricing. Postage is inexpensive in the United States by international standards. Compared to the postage required in 40 foreign nations for an ordinary domestic letter, USPS's 45 cent stamp price is below the rates in three-fourths of the foreign countries. USPS's price would have to rise by more than a third, to over 60 cents, before it merely equaled the average charge in the other nations. USPS is also much lower than average in the extent to which postal rates have changed over the last decade. Deutsche Post found that, across a sample of 29 European nations, the ordinary domestic letter rate rose an average of 32% in inflation-adjusted dollars over the period 2001-2011. In this country, the inflation-adjusted increase was only 3.1%. The real price that USPS charges for a first-class stamp is essentially the same now as it was in 1971. The amount USPS charges for ordinary domestic parcel post is also below average compared to rates at foreign postal services.

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