WASHINGTON – The Progressive Policy Institute, a think tank which works closely with the Democratic Leadership Council, a centrist Democratic group, surprised the credit union trade associations last week by floating a proposal which included taxing credit unions of over $10 million in asset size. The Democratic Leadership Council is a group closely associated with former President Bill Clinton and is considered a source of "new ideas" Democrats could present on public policy. "Rejecting tired dogmas, PPI brings a spirit of radical pragmatism and experimentation to the challenge of restoring our collective-problem solving capacities," the Institute says of its mission. The policy paper, Family Friendly Tax Reform, had been floating around since March of 2005 but had only recently begun to garner more attention, according to Paul Weinstein Jr., the author of the paper and COO of the Institute. On May 11, Weinstein testified based on the paper before President Bush's Advisory Panel on Tax Reform, and he said that different groups had been contacting him about different aspects of the paper. Drawing on the Congressional Budget Office's February 2005 Budget Options report, the PPI suggests using the $15 billion that the CBO said could be raised by taxing credit unions over $10 million in assets to help pay the $56 billion cost of making the home ownership deduction something Americans could get without having to itemize their tax returns. This change would enable an additional 10 million Americans to take advantage of the deduction, the Institute suggested. The credit union trade associations criticized the CBO report when it appeared in February, pointing out the report said that credit unions serve the general public at a time when all credit unions have some sort of field of membership. Family Friendly Tax Reform didn't pick up the details of the CBO report except for the definition of a large credit union as one with over $10 million in assets, a figure which Weinstein admitted he had not researched closely. The NCUA defines a small credit union as one which is smaller than $10 million in assets. "I wouldn't want this to be interpreted as anti-credit union because it really wasn't meant to be," Weinstein said. "The credit union tax proposal came about as part of a proposal to expand the home mortgage deduction which, in turn, would spur more mortgages and that is bread and butter to credit unions," he added. Weinstein explained he considered the proposal better to other credit union tax proposals because he saw it as both giving something to credit unions, a potentially larger mortgage market, in exchange for losing the tax exemption. Other proposals have just been than tax CUs, he said. Weinstein also pointed out that it was impossible to view the tax reform proposal on one point alone but insisted that the proposal needed to be considered in its overall effort to provide middle class families with tax reform aimed at four specific areas: a college tax credit, a family tax credit, providing the home mortgage deduction without having to itemize tax returns and providing a universal pension. "These are the things we believe need to be done and, in this budget environment we have to produce budget neutral proposals. Any new ideas have to be paid for," Weinstein said. Weinstein noted that there were 68 proposed ways to pay for these new initiatives in the plan and that he was not wed to taxing credit unions. "If someone else or some other group has a different approach that still meets our goals, we are fine with that," he said. When asked if a more cost effective approach might be to just educate taxpayers about the wisdom of itemizing their tax returns when they have a mortgage, Weinstein replied that, under current rules, some people just didn't take the deduction because their mortgage interest was not more than the standard deduction. Reaction Expected To Be Swift and Strong But Weinstein may learn a bit of why credit unions are considered one of the strongest industries in Washington before his proposal to tax credit unions is able to garner any more even limited steam. "This proposal is going to be discredited so fast that it will undercut whatever limited legs it has," said Gary Kohn, CUNA's senior legislative counsel, "starting with the members of the DLC which are going to oppose taxing credit unions." The DLC has no elected representatives as direct members but it has ties to many well-known Democratic legislators, such as former Democratic presidential nominee John Kerry. Many of these legislators, like Kerry, are on record as opposing taxing credit unions. "So that part of the proposal is going to be repudiated by some of the very people associated with the DLC," Kohn said. The Association will also point out that taxing credit unions makes no sense because it will only end up hurting the very consumers the Institute says it is trying to help, he said. "The DLC is probably unaware that we can demonstrate that consumers who are CU members realize, annually, $6 billion in savings on loan interest and lower fees, as well as the additional dollars they earn on their savings at credit unions," said CUNA spokesman Pat Keefe. "I don't know how much of that would be at risk should the PPI's recommendations be taken; however, it stands to reason that taxation would no doubt have a profound effect on those realized savings." Murray Chanow, NAFCU's senior legislative director agreed with Kohn that the proposal had no chance of going anywhere but that it needed to be confronted because it could add one more additional voice to the idea that credit unions should be taxed. He also joined Kohn's observation that Weinstein did not appear to know very much about credit unions and said that the Institute did not contact NAFCU to ask anything about credit unions. For its part, NCUA took a very similar tack to the one it took in February in response to the CBO report. "The President along with Secretary Snow has said that taxing credit unions is a non-starter based on the not-for-profit structure and mission of service," said NCUA spokesman Nick Owens. "Furthermore, Congressional leaders in both the House and Senate strongly support credit union tax exemption. Clearly, there are those who may not recognize the value of America's credit unions' not-for-profit financial cooperative structure. However, we believe the tax exemption is most safe and sound and is a public policy issue for Congress." [email protected]