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1 J. D. Foster, Reverse Privatization: The Expanding Postal Service 1 (1999)

handle is hein.taxfoundation/taxfaamc0001 and id is 1 raw text is: TAXDTO
FOUNDATION

September 1999

Reverse Privatization: The Expanding Postal Service

Chief Economist
ByjD Foser. h.D.In recent years the U1nited States Postal
ExectiveJ~irctorand Service has gone from a slow-moving financial
Tax Foundation          disaster to what is for a federal governmental
entity a relatively efficient and profitable
enterprise. By any standards, the Postal
Service is also an enormous enterprise. If it
were a private company, its $56 billion in 1996
revenue would have ranked it as the tenth
largest in the country.
It has achieved this remarkable turnaround
through strong leadership and a shifting of
organizational attitudes. No longer is the
Postal Service just another clumsy bureau-
cracy. Today, it is trying hard to emulate the
cost-efficiencies and customer orientation of a
private company.
As its organizational mentality has shifted
to that of a private company, the Postal Service
The Postal Service seems much more aware of
market dynamics and is much more focused on
consumer satisfaction. One troublesome aspect of
this new spirit, however, is an apparently growing
desire to expand into new lines of business where
private companies are already active.
leadership has taken on many laudable private
company attitudes. For example, the Postal
Service seems much more aware of market
dynamics and is much more focused on
consumer satisfaction. One troublesome
aspect of this new spirit, however, is an
apparently growing desire to expand into new
lines of business where private companies are
already active.

This strategy by the Postal Service raises
an important question for tax policy makers
about the propriety of a governmental entity
that competes with private companies. This
question is all the more relevant since the
Postal Service may be competing in these
markets unfairly on the basis of special
advantages it enjoys as a quasi-governmental
enterprise. Chief among these special advan-
tages is its tax-exempt status. As the Postal
Service leverages its tax-exempt status and
other special advantages, it poses a real threat
to the success of competing, tax paying
private companies.
The Postal Service is by no means the only
quasi-governmental enterprise looking to
branch out. The U.S. economy is sprinkled
with organizations and industries that the
federal government has granted special rules,
including tax-exempt status. They run the
gamut from credit unions providing retail
financial services to power companies provid-
ing electricity.
Like the Postal Service, many of these
organizations are using their special advantages
to break into new markets and to compete
with private companies. The profitability and
indeed the continuation of many private
companies are threatened as this expansionist
trend among tax-exempt entities continues.
The diversification of tax-exempt entities is
made possible largely through an unintended
and largely self-created tax loophole.
When these organizations were created
and granted tax-exempt status, few people
imagined that they would use their tax exemp-
tion as a competitive advantage in branching
out into other activities. However, by expand-
ing their activities, these organizations are

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