Does the Treasury owe the US Postal Service $75 billion?

The Institute for Research on the Economics of Taxation (IRET) has released a report on the USPS OIG’s contention that the Postal Service has been overcharged up to $75 billion by the Office of Personnel Management for Civil Service Retirement costs since 1971. While IRET is a well known right wing “think tank” financed by, among others, the Scaife and Koch family foundations, it’s difficult to argue with one crucial point raised by the report: even if one accepts the proposition that the USPS overpaid the Treasury by $75 billion since 1971, it isn’t owed any money.

That conclusion stems from the simple fact of the USPS rate setting process- because the USPS was required to break even over time, its rates took into consideration all of its expenses- including the alleged $75 billion overcharge. Had the USPS been charged $75 billion less, its rates would have been proportionately lower, leaving its cumulative net income unchanged.

The report goes on to point out that it would be impossible to reimburse the people who actually paid for the overcharges- postal customers:

… it is not possible to send refunds to those who ultimately paid the bills. As was noted, rate regulation allowed the Postal Service to pass on to mail users its higher costs due to the CSRS allocation methodology. If the methodology is retroactively reversed, it is those customers who should receive refund checks; the Service should not obtain the money because it was already compensated through the postal rates it charged. Unfortunately, it is impossible now to identify those past mail users and determine how much each is owed. One might rationalize that the Postal Service would probably pass along some of the refund to future mailers in the form of lower rates, but future mailers will often be different from past mailers, especially with the shift over time from first-class mail to standard (advertising) mail.

The report is careful to distinguish between the alleged CSRS overpayment and the future retiree health benefits trust fund, pointing out that “The Postal Service’s current financial troubles are due… to the triple whammy of the severe recession, accelerated electronic diversion since the recession’s start, and an ambitious and inflexible schedule for funding the retiree health benefits promised to postal employees.”

Does the Treasury owe the US Postal Service $75 billion?

  • M. Jamison

    This report is a disingenuous attempt to support a foregone conclusion rather than a seriously objective argument.
    The argument that the overcharges did not affect the Postal Service or its customers because the system was designed to recover costs and therefore rates were set accordingly sounds almost plausible. Unfortunately it ignores the various historical circumstances which led to certain strategic decisions. Those decisions, based on costs and the idea that costs had to be contained resulted in a whole series of decisions that changed the course and capabilities of the organization.
    The overcharges may be owed to customers past but their existence did have an impact on operations and decision making. How much is an exercise in speculation, at least in terms of specifics but the impacts were significant and may affect rates, rate categories and the outcome of past labor negotiations which took into account higher retirement costs.
    What is needed at this point is a redefinition of what the Postal Service, what its mission is and how best that can be accomplished. Issues of benefit funding are really secondary to that discussion.
    There has been a failure in both Congress and amongst senior postal management in coming up with a sustainable vision of what postal infrastructure ought to supply. This failure of leadership leaves us arguing about the wrong things in the wrong ways.

  • JY

    They obviously forgot about the independent company who determined the same thing, albeit $25 billion less.

  • brian

    M. Jamison- not sure what your point is- the fact that the USPS didn’t suffer a net loss as a result of any overcharge is completely objective. What are you suggesting would have been the impact of “various historical circumstances which led to certain strategic decisions”??

  • M. Jamison

    Had expenses been less perhaps rate changes would have taken different shapes. The overcharges into various employee benefit funds have changed rate seeking behavior. Perhaps those overcharges may have affected analysis based on total employee costs.
    If past rate increases had been significantly less how might that have changed the focus of PAEA?
    Let’s not forget that this one particular instance is not a singularity. The Postal Service has been overcharged on several benefit calculations and while one cannot say exactly how the behavior of the organization might have changed it is reasonable to conclude that the behavior did change based on higher than justified expenses.
    The idea that those harmed by the overcharges, i.e. past rate payers have already been harmed so therefore no justification exists to correct the past errors seems like an excuse to do nothing which would suit those ideologues who dream of seeing postal labor eviscerated.

  • brian

    Still no clue what your point is- you just spout vague suggestions that if things had been different, then things would have been different. OK- so? Also- your comment: “The idea that those harmed by the overcharges, i.e. past rate payers have already been harmed so therefore no justification exists to correct the past errors seems like an excuse to do nothing which would suit those ideologues who dream of seeing postal labor eviscerated.” is unrelated to what I said, and to what is said in the report. Neither the report nor my blog post suggested that “past rate payers have already been harmed so therefore no justification exists to correct the past errors”. I’m not even sure what that’s supposed to mean. What the report said, which is objectively true, is that it would be impossible to “repay” the people who actually funded any alleged overcharge. Do you dispute that? If so, please explain how mailers from 1971 to the present (and I’m included in that group) would be reimbursed?

  • Game

    brian, Let me help. The overpayment would help the “sustainability” of the universal service customers have enjoyed at the most affordable price in the world. The overpayment would fully fund the retirees health benefits. If current trends continue the inflexible pre payments that no other private or public entity has, will be in default. This will be subsidized by the US “taxpayer”. Using the simple arguement that the customers would not be repayed is non-sensical. A sustainable, affordable , and vital Postal Service that continues to survive and thrive is the ultimate repayment.

  • phil

    So what I am to understand is since the Postal Service is unable to return the over paid money to it’s customers, the American people “no harm, no foul.” Could this be considered a back door tax on the citizens of the United States?
    Since everyone, from 1971 through it’s discovery has been forced to pay higher postal rates because of this overcharge. A backdoor tax that was neither voted on and passed by the Legislative branch and signed by the President of the United States.
    Should not the right thing to do, would be to return overcharged amount so the Postal Services current customers, this generation of American citizens will be able to enjoy sustainable Postal rates for a longer period of time without seeing an increase?

  • PR

    Perhaps if the rates were not raised in order to cover the
    overcharge the Postal Service would have been more
    competitive with the private sector and lost less business
    and revenue! Hmmmmmm…

  • M. Jamison

    Ok, What would the price of a first class stamp be absent the $75 Billion in overcharges? How much more would mailers have mailed absent the overcharges? Would lower rates have changed decisions on automation or what sorts of discounts were given? If prices had risen significantly less than the rate of inflation would the PAEA been constructed differently?
    Granted, the answers to those questions are arguable, perhaps postal management would simply have wasted the excess. However, absent the overcharged expenses it is likely the situation we find ourselves in today would be different.
    There are some estimates that all of the various overcharges to benefit transfers amount to as much as $149 billion. If rates are driven by expenses then lower expenses would have resulted in lower rates which would have changed economic behavior.
    And yes, you are correct in arguing that it would be virtually impossible to repay, at least specifically, every mailer affected since 1971. That doesn’t make reimbursement less legitimate. Simply because the wrong was discovered or remedied at a point where it is impractical to reimburse individual mailers doesn’t mean the accounts shouldn’t be corrected.
    The benefits of any correction would accrue to present and future ratepayers as well as the most important stakeholder – the American people as a whole. Of course that presumes that Congress, management and the regulators could come up with a model for a sustainable Postal Service.
    “Neither the report nor my blog post suggested that “past rate payers have already been harmed so therefore no justification exists to correct the past errors”.”
    Actually that is exactly what your post and the report suggest – those originally damaged cannot be compensated so no correction is due.

  • Poor Richard

    it appears your point is to glaze the eyes of your readership and justify unjustifiable accounting practices with the resemblence of a “good cop” rhetoric. In real numbers theory, and in Postal Finances, reserves are calculated to fully fund the system of operations for a calender year without ANY income. Since we are the cash cow, that theoretical worst case scenario hasn’t occurred (…yet.) But attaching a value of $75 billion to those reserves for “repayment” argumentation is better labled as a “red herring argument.” Employees and management have vastly divergent agendas currently, whereas the USPS mission prior to the Reagan administration was a pretty straightforward one. Zero sum gain.

  • brian

    M. Jamison- simply repeating a lie over and over doesn’t make it come true. Neither the report nor my blog post suggested that “past rate payers have already been harmed so therefore no justification exists to correct the past errors”. If you can show me where I used those words, please do so. What you seem unable or unwilling to grasp is the difference between saying something cannot be done, and saying something should not be done. I’m all for giving people back the money they were overcharged- I’m one of them! But it is impossible. Your solution is to give the money to future mailers in the form of lower rates in the future. That may or may not be a good thing, but the point is that you can’t correct an injustice by giving the money to people who weren’t the ones that were overcharged.
    Your other suggestion, that giving money to the mailers would help “the American people as a whole” is just silly- they’re the ones who would have to finance the reimbursement!

  • brian

    phil- You’re absolutely right- if you accept that there was a $75 billion overcharge, then this was a backdoor tax on a large segment of the American people. But how do you correct that by taking $75 billion out of the Treasury and giving it to future mailers? It’s the American people, i.e. the taxpayers, who would have to come up with that money.

  • Kathy S

    My insurance company applies for rate increases with the state based on reserves for future hurricanes that may or may not happen. I pay those increases and I don’t remember getting a rebate when we don’t have storms. However, they are FOR profit. And, while storms may not happen, employees WILL retire, and the Postal Service should get some form of a rebate. While outside forces have contributed to the Postal Service problems, the prefunding requirement Congress mandated in 2007 must be corrected. The picture might not be sunny, but definitely not as gloomy as portrayed.

  • j bob

    1) rates have already been kept at or below inflation for the past 40 years. . . . john q. public was never harmed.

    2) paying back the usps would shore them up financially, stabilizing the postal service and keeping future rates lower. . . . pre-paying back john q. public.

    3) postal employees have been harmed: a finacially buoyed usps would have meant better pay and benefits over the past 40 years, and its future in is currently in jeopardy. . . . paying back overcharges would make whole all parties.

  • Rick McDowell

    the funny thing here is if the Post Office had borrowed 75 billion they would be expected to pay back the tax payers however when they over pay , well theres no need to repay because nobodys been harmed, well after thousands of postal jobs have disappeared over the last 4 years you will have to excuse our inability to understand your stance, the Post Office has become a shell of what it was when I started in ’96 and carrys far more mail now than it did then, when they say mail volume is decreasing , they mean from the peak 2006 levels, the insanely funny thing is in 2006 they said mail volumes were declining then.
    Pay us back, let it fund our retirement obligations and then maybe they can stop squeezing the work force so hard

  • brian

    Who said nobody’s been harmed? Customers were overcharged $75 billion. They’re the ones owed money, not you or me. How did you lose anything? The USPS raised rates by $75 billion over what they would have been otherwise- so it didn’t have any less money available for pay and benefits than it would have had otherwise- how do you figure that means someone owes YOU something?

  • brian

    j bob- rates weren’t based on being “kept at or below inflation”. They were set based on breaking even. If the USPS was overcharged $75 billion from 1971-2006, then customers paid $75 billion more than they should have. You can’t “pay back” the USPS, because they’ve already recovered the entire $75 billion from their customers. Since the USPS operated on a break even basis, there wouldn’t have been any big profit available for giving big pay raises to employees- the rates would simply have been lower.

  • j bob

    the neat thing here is we have 40 years of data. this has nothing to do with theory.

    it wasn’t law that postage rates stayed at or below inflation until 2006 — true. however, with collective bargaining and binding arbitration introduced in 1971, that clearly became the mandate. postal rates HAVE stayed at or below inflation for the past 40 years. . . the data is there. look it up. this is no coincidence.

    the postal regulatory commission (prc) set the rates for the past 40 years, but postal unions renegotiated their contracts (and continue to) every few years. additionally, the congress, often through the office of personnel management (opm) have incorrectly squirreled away tens of billions of dollars at a time — to later be caught and have that money transfered back to the postal service. read, there is precedence for this.

    back to union contracts. over the years, not only has the government been caught several times before with their hand in the cookie jar, but collective bargaining — sometimes through binding arbitration — has led to pay/benefits for postal employees that have done better than inflation. unions have done this largely by increased automation; increasing productivity, sacrificing the number of jobs, but also increasing pay/benefits and work conditions. read, the past 40 years “break even” has come to mean rates stay even with inflation for customers & pay/benefits increase for employees (and the government can keep only what we can’t catch them taking).

    the postage rates are there. the union contracts are there. the government paying back numerous thefts are there. this is the precedent. it makes no sense to say, “if congress hadn’t taken $1.5 billion extra a year, rates just would have been lower.” this is not how things have operated. this is therefore not how they would have operated. rates still would have marched right along with inflation.

    had congress not been stealing AND rates had marched right along with inflation — i agree, collective bargaining and binding arbitration would have meant the unions would have had to take less pay/benefits NOW for what they WOULD HAVE gotten then. but this is not the history.

    therefore, i say again, the harmed party was the workforce.

  • Fed up with the FED

    Why is it that the USPS was the only government entity to have to use this so called Formula to pay into the retirement fund? Also why is it that the USPS and OPM were aware that this so called formula was covering other Federal retirement groups if in fact it was not an overpayment?? Obviously there is more to this than meets the eye and I must say.. This reeks of POLITICS more than assistance to an old arm of government. The facts are skewered and obviously something is being covered up here. The OIG reports for years and I have read them all spoke of overpayments and reimbursements. I have also seen the formula.. specifically there is no possible way the stamp increases till today would even make a dent in what was given out and certainly what will be given out in the future.. This is just another excuse for this subcommitee to further their republican agenda of pushing around the USPS and their unionized workers.. dont think there wont be a fight with the unions on this because we are talking walk out right now as we speak.

  • Marcus

    USPS covering the cost of other underfunded Fed retirements! Now the overpaying schedule is becoming more clear.