A Brief Analysis of the Financial Viability of the USPS: Misconceptions About Subsidies, Profitability, and the Risks of Privatization

The 2006 Mandate and the Manufactured Crisis

The financial challenges facing the United States Postal Service (USPS) are largely the result of legislative constraints rather than operational inefficiencies. A primary cause of the USPS’s financial struggles is the Postal Accountability and Enhancement Act (PAEA) of 2006, which required the agency to pre-fund retiree health benefits decades in advance. This requirement, unique to the USPS, imposed an immediate financial burden that no private entity or federal agency faces. Prior to the PAEA, the USPS operated with a sustainable budget and generated consistent profits, reinvesting surpluses into infrastructure and the U.S. Treasury (Institute for Policy Studies, 2023).

Contrary to popular belief, the USPS does not receive direct taxpayer funding to sustain its operations. Instead, it generates revenue through the sale of postage, services, and other products. However, the artificial deficit created by the 2006 mandate made it appear as though the USPS required continuous financial assistance when, in reality, it was forced to divert revenue toward liabilities that were decades away (USPS Office of Inspector General, 2025).

The 2022 Reform Act: Not a Bailout, but a Structural Reset

The Postal Service Reform Act of 2022 was framed by some as a $50 billion bailout, but this characterization is misleading. The law did not inject cash into USPS operations; rather, it removed the unnecessary burden of pre-funding retiree healthcare while requiring future retirees to enroll in Medicare, aligning their benefits with standard federal employee retirement policies (Federal News Network, 2022). This reform was not a taxpayer giveaway but an overdue correction to an artificial financial constraint that had hamstrung USPS profitability for over a decade.

The Cost Difference: USPS vs. Private Carriers

The USPS remains the most cost-effective mail carrier in the United States. Unlike private entities such as FedEx and UPS, which prioritize profitable markets, USPS is mandated to provide universal service to every address in the nation at uniform rates. Private carriers charge significantly higher fees for comparable services, particularly in rural areas where delivery costs are higher. For example, a standard letter via USPS costs $0.66, whereas FedEx and UPS charge upwards of $3 for similar services (ShipBob, 2023). When it comes to package delivery, USPS often remains the most affordable option, particularly for lightweight items.

Additionally, private carriers rely on USPS for last-mile delivery in remote areas because it is not cost-effective for them to establish their own networks. Privatizing the USPS would eliminate these efficiencies and likely increase costs for consumers, small businesses, and government agencies (GAO, 2023).

USPS Cash Reserves and Financial Sustainability

Despite its reported deficits, the USPS maintains substantial cash reserves and investment holdings to cover its annual losses. The agency actively manages financial risk through treasury investments, mitigating the need for external funding (USPS Office of Inspector General, 2025). In years where it generates a surplus, those funds are reinvested into infrastructure improvements or returned to the U.S. Treasury rather than distributed as profit to shareholders, as would be the case with a privatized entity.

The Myth of Fully Free-Market Postal Privatization

Proponents of privatization often cite foreign models, such as those in the United Kingdom, Germany, and New Zealand. However, these countries have not fully embraced free-market privatization. Instead, their postal systems operate under regulated privatization or partial state ownership, ensuring continued government oversight, price controls, and service obligations (Syndex, 2019). The UK’s privatization of Royal Mail, for instance, resulted in higher postage rates, service cutbacks, and widespread dissatisfaction, ultimately necessitating government intervention (National Audit Office, 2014).

If the USPS were to be fully privatized without similar safeguards, the consequences would likely be even more severe, given the U.S.’s larger geographic expanse and reliance on affordable mail services. Moreover, any private entity assuming control of the USPS would still require congressional oversight for services such as mail-in ballots, census forms, and government correspondence—raising the question of whether full privatization is necessary or even practical (Reuters, 2022).

A More Viable Alternative: Expanding USPS Services

Rather than removing the USPS from congressional oversight, a more effective approach would be to expand its services to increase revenue while maintaining affordability. This could include:

Handling Census Mailings: Strengthening the USPS’s role in delivering and processing census forms, as suggested by Lutnik (2025).
Postal Banking: Restoring a postal banking system to serve unbanked and underbanked rural communities (Slate, 2014).
Enhanced Retail Services: Increasing the sale of office supplies and offering DMV renewals and passport processing at all post offices.

By expanding these services, the USPS could generate additional revenue streams, reducing the need for future financial interventions while maintaining its Universal Service Obligation.

Real USPS Financial Support vs. Per-Taxpayer Breakdown

To put the USPS’s financial burden in perspective, the actual liquid funding it has received from taxpayers in recent years is minimal. Unlike other government agencies, the USPS does not rely on annual appropriations to sustain operations. Instead, it funds itself through revenue-generating services. If the USPS were forced to cover its current reported deficits through external means, the per-taxpayer burden would still be lower than the costs associated with privatization.

Current USPS Cost Breakdown:

Annual USPS "Subsidy" (Primarily retiree healthcare restructuring): ~$1.8 billion
Cost per Taxpayer Per Year: ~$12
50-Year Cost Per Taxpayer: ~$600

Estimated Privatization Costs:

Higher Postage and Service Fees: +$20 per year
Increased Government Mailing Costs: +$10 per year
Job Loss Multiplier Effects: +$5 per year
Total Privatization Cost Per Taxpayer Per Year: ~$47
50-Year Cost Per Taxpayer: ~$2,350

Conclusion

The USPS is not a failing entity in need of a taxpayer bailout, nor is privatization a fiscally responsible solution. The true cause of its financial distress stems from the 2006 pre-funding mandate, which artificially manufactured deficits that made the agency appear unsustainable. The 2022 reform act corrected some of these structural issues without injecting external funds, and further modernization efforts could restore USPS profitability without abandoning its universal service mission.

Privatization has repeatedly led to increased costs and reduced service quality in other countries, but those models are not truly representative of a free-market approach. Most privatized postal services still operate under heavy government regulation, making full privatization of USPS impractical and unnecessary. Instead of shifting to an inefficient model requiring further oversight, policymakers should focus on expanding USPS services and revenue streams to ensure financial sustainability while maintaining affordable mail access for all Americans.

Sources

Postal Industry Comparisons & Cost Breakdown

ShipBob – Compares USPS, FedEx, and UPS, highlighting differences in cost, speed, and service reliability. Useful for demonstrating USPS's cost-effectiveness compared to private carriers.

Privatization & Its Impact

National Audit Office (UK) – Examines the UK’s Royal Mail privatization, showing its impact on service quality, prices, and government oversight.
Syndex Report (2019) – Covers the social and economic consequences of postal service privatization in Europe.
PostBoxed (UK) – Discusses the decline of Royal Mail post-privatization and how it affected service and costs.
Boeckler Foundation – Analyzes European postal service privatization and government regulations in different countries.

USPS-Specific Financial & Policy Analysis

Institute for Policy Studies – Explains how the 2006 pre-funding mandate artificially created a financial crisis at USPS.
GAO Report (2023) – Government Accountability Office’s analysis of USPS’s financial status and policy recommendations.
USPS FY2025 Financial Report – Provides USPS’s official financial results, showing its cash reserves and fiscal management.
USPS OIG Report on Investment and Risk – Examines USPS's financial investments and interest rate risks, showing its financial stability despite deficits.

Postal Reform & Legislative Changes

Reuters (2022) – Reports on the passage of the 2022 Postal Service Reform Act and its financial implications.
Federal News Network (2022) – Details how the 2022 reform act removed the pre-funding mandate but did not provide an actual cash bailout.
APWU (Postal Union) on COVID Relief – Discusses USPS relief efforts during COVID-19 and why funding changes were necessary.

Workforce & Economic Impact of USPS

Marketplace (2020) – Examines USPS's role as a major employer for veterans and its pension responsibilities.
Federal News Network (2024) – Highlights the impact of upcoming USPS retirements on its financial outlook.
BLS Report (Layoff Costs) – Analyzes the cost of workforce reductions and unemployment insurance, relevant for estimating privatization job losses.

Government Use of USPS & Potential Service Expansions

Census Bureau (2023) – Shows the necessity of reliable census mailings, which USPS is well-positioned to handle.
Postal Methods (Legal Mail) – Details how USPS is crucial for mailing court documents and legal communications.
Slate (2014) on Postal Banking – Advocates for restoring USPS postal banking services to support rural communities.

USPS’s Role in Public Infrastructure

Facts.USPS – Official USPS facts on mail volume, delivery coverage, and economic contributions.
World Population Data – Provides country population statistics, useful for comparing USPS’s service model to international counterparts.