DMA Calls for End to 'Hidden Postal Tax'

May 19, 2011 — Congress needs to make broad reforms to the US Postal Service or risk hurting the vital US mailing industry, according to testimony given to a US Senate Subcommittee. The Direct Marking Association (DMA) testified about the urgent reforms that need to be made at the Postal Service.

DMA is a member of the Coalition for a 21st Century Postal Service — a coalition of businesses and industries tied to the mailing industry,

“Employee compensation and benefits still comprise nearly 80 percent of Postal Service expenses even after almost 40 years, billions of dollars of capital investment and productivity gains. No private sector business could ever hope to avoid bankruptcy with that kind of track record,” said Jerry Cerasale, senior vice president, government affairs of the Direct Marketing Association, the leading global trade association for businesses and nonprofits that rely on direct marking.

The future of the Postal Service is vitally important to the US mailing industry, which supports 8 million private sector jobs. In 2009, the mailing industry generated $1.1 trillion in economic activity, representing over 7 percent of our national GDP. Postage paid by the industry and the mailing public supports USPS; it receives virtually no taxpayer funding.

But the mailing industry has been hit hard by dramatic over-funding of the postal retiree health and pension system. For many years, the law has unfairly required USPS to pay far more than necessary into the federal retirement system; payments derived from the postage received from customers. The Postal Service Inspector General and the independent Postal Regulatory Commission have both found that postal customers have overfunded pension obligations for postal retirees by between $50 and $75 billion, amounting to a vast hidden tax on the mailing industry and all mail customers. Transferring these overpayments back into the postal system would be an important first step in shoring up the US Postal Service.

“Without this overpayment, postage would have been lower and there would have been much more that businesses could have done with mail to stimulate economic development and job growth. We could have employed more Americans than we currently employ,” said Cerasale. “This tax hits small businesses, the job creation engine in the American economy, particularly hard.”

In addition to the pension overpayments, USPS’s retiree health fund now contains $43 billion, enough to provide health insurance for postal retirees for decades. Yet the law requires USPS to contribute another $5 billion annually to this fund. Virtually no other private or public entity prefunds its retiree health care at all, let alone at that level. It is unlikely the Postal Service will be able to make this payment as required this September, which will send the USPS into a technical default.

The Coalition for a 21st Century Postal Service is calling on Congress to enact reforms that include short-term steps to maintain the Postal Service’s solvency, and longer term steps to ensure it can be an effective medium of commerce and communications for the 21st Century. The testimony today was part of a hearing on the US Postal Service’s financial crisis held by the Senate Committee on Homeland Security and Governmental Affairs’ Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security.

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