Death is Certain But Not Taxes, Especially if You're a Banker
Not to offend any lobbyists or politicos out there, but it's hard not to laugh when you hear someone proclaim to be an expert in politics. They talk about their deep, deep knowledge of politics. They understand the intricate, inner workings of Capitol Hill. Filibustering and pork are second nature to them. Why is it funny? Well because politics is about a lot of nonsense these days. It's hard to believe anything you hear. It's difficult to understand why some seemingly pointless bills pass, while seemingly intelligent bills don't see the light of day. The only way to really be informed is to read every line of every bill in an area of focus you are interested in, but that's not nearly enough. You also must know the history, voting record, current climate in their respective states, and other fun stuff about the key members of Congress involved as that is often a big part of the story. That's not even enough. You need to know what lobbying groups, what areas of industry are exerting influence on legislation. It's a wicked web to follow.
It's unfortunately filtered to the media. Fox is right, CNN is left, this paper is liberal that paper is conservative. The point is politics show up everywhere and unfortunately facts don't dominate the political game. The facts are hard to find, and even when they are found they are often ignored.
I bring this up because the lobbying efforts of the bankers (their politics) continue to show that their arguments (facts) hold no water, yet they still gain traction on Capitol Hill. It's laughable. If members of Congress looked just at the facts (forget us media types and the dedicated credit union lobbyists), they would be hard pressed to listen to banker calls to get credit unions taxed with a straight face.
This was proven true once again just recently. At press time a study released from the Government Accountability Office found that banks have been skirting taxes for years. I will get into the details, but the GAO report can be summed up in one line: Banks are using complex accounting and legal techniques to avoid taxes available to all corporations, and no surprise, banks are getting more income then ever from fees. That should be enough for lawmakers to realize that credit unions don't have a major tax advantage as banks proclaim and credit unions are essential for keeping harmony in the financial marketplace. Credit unions are low-cost providers that act as a checks and balance in the market.
Let's look at some specifics. First some well-known history. The S&L bailout cost $160 billion according to the GAO's estimate in 1996 that it still stands by today. The bailout caused all sorts of litigation and gave tax benefits to acquiring institutions that according to the GAO report have resulted in $6.51 billion in tax benefits for acquiring institutions, and those benefits continue. The S&L bailout is the gift that keeps giving. (How much did the credit union bailout cost? Oh, fact, there never was one.)
Now the fun stuff. In 2004 bankers' tax deductions totaled $108 billion. They also received $200 million in tax credits. Not bad. Hilarious considering that bankers say the government stands to earn $14 billion on credit unions over 10 years if they were taxed. A pittance compared to the taxes banks are avoiding. Now it is true that banks aren't taking advantage of any specific banker-friendly tax laws. They are using deductions available to any corporation, but be that as it may they are finding ways to lighten their tax load dramatically. I don't blame them, but you can't do that on one hand and on the other scream for credit unions to be taxed.
The report also reiterated another well-known fact--31% of banks are Subchapter S corporations and thus not subject to corporate income tax. Again good for them, but the credit union taxation argument? It's getting weaker and weaker.
But wait let's not completely discount the bankers' arguments yet. They do claim that the credit union tax-exemption creates an unfair playing field and credit unions have an advantage in the market. Too bad the facts don't bear that out. Last year banks and thrifts amassed nearly $150 billion in net income, a vibrant 7% growth rate over the last decade. The tax-advantaged credit unions on the other hand saw just $6 billion in net income in 2006, but more importantly using an apples-to-apples comparison, a growth rate of just 3%. Who's hurting who?
Banks are also seeing more of their profits come from fees. Non-interest income was up from 32% in 1990 to 43% in 2006. That's still far above credit unions' 31% non-interest income slice, however it should be noted that credit union non-interest income has doubled since 1990.
Not to bring up bankers' ugly redlining days that led to CRA, but bankers are also getting a little too cute with their tax avoidance according to the GAO report. The IRS has been coming down on some banks for using abusive tax shelters. According to the GAO, some banks have engaged in lease-in/lease-out transactions to avoid taxes. The IRS has sued and won in some cases. Bankers don't always play by the rules as we know.
Let's wind back up to where this column started--politics, the slippery, hard to pin down business of making the law of the land. At press time, an emergency supplemental spending bill for the war passed that carries nearly $5 billion in tax breaks including almost $900 million such breaks for Subchapter S corporations, including banks.
Stick with the facts and it's clear bankers are not at a tax or competitive disadvantage, and they have been getting their fair share of tax breaks. The problem is the facts don't always win out on Capitol Hill.
--Comments? E-mail email@example.com