When we first read that the Postal Service was raising prices in the face of decreasing revenue, we thought “that’s government for you.” And it is — just not the way we expected.

According to the WSJ, revenue from first class mail — which makes up half of USPS revenue — decreased 4.3% in the quarter ended December 31 versus a year earlier. When we heard the ’solution’ was a 7% price increase, from 39¢ to 42¢, we just assumed Postal Service management never opened an economics textbook.

But there’s actually more to the story. Ezra Klein, with whom we usually disagree, points out the rate increase is actually a disguised tax.

Several years ago a change in government accounting for pension and retiree costs created over $3b / year in “savings” for the USPS. By law this was first used to pay down the Postal Service debt to the US Treasury, but now that the debt has been wiped out, the Postal Service still has to pay the $3b / year into an escrow account. This despite the fact that its pension plans are overall overfunded.

The $3b / year payment was the proximate cause of January’s postal rate increase. According to the USPS’s own press release:

“The January 8, 2006 rate increase was compelled by legislation enacted in 2003 requiring the Postal Service to put aside over $3 billion each year into escrow beginning in 2006. Efforts to change the escrow requirement have been stalled in Congress. Without the escrow requirement, postage rates most likely would have remained at current levels until 2007.”

The likely reason the Postal Service had to make the escrow payment? The $3b per year is counted as reducing the federal budget deficit.

And that’s the problem. No Congressperson is motivated to eliminate the escrow requirement, because it would increase the reported deficit. Instead, people sending birthday cards are being charged not just for the delivery of their piece of mail, but for Congress’ inability to control spending.

Perhaps the new “forever stamps” could feature pictures of the West Virginia infrastructure, Alaskan bridges, and other unnecessary projects that we’re being asked to go into debt to pay for. Because we’ll be paying for them for just about … forever.

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With $39.3b of direct compensation for 704,000 employees, the average USPS employee is making $55.8k — before retirement and health benefits are counted. (Source: USPS Annual Report 2005). That seems … high. Will postal services in the U.S. ever be opened to competition as they have been in the UK, Sweden, Finland, and New Zealand, among others?

Technorati Tags: government waste, pork spending, taxes

This entry was posted on Monday, May 8th, 2006 at 11:46 am by A Senior Administration Official and is filed under Your Tax Dollars In Action. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.