ARLINGTON, Va. -- When Treasury released a "backgrounder" this summer referencing the credit union tax-exemption as one of several possibilities to lower the corporate tax rate, NAFCU sprang into action surveying its members on the impact that would have on them.
Interestingly, NAFCU's Flash Report survey found "almost all" respondents--only 96%--said they supported a continuation of the federal tax-exemption for credit unions.
If the tax-exempt status was repealed and credit unions paid the average tax rate banks do at 33.2%, those surveyed said there would be "many changes to their daily operations."
The most likely change was lower net income, noted by 92% of respondents. "There would be a strong incentive to exhibit tax avoidance behavior, and any tax revenue estimation must consider this behavior," the Flash said.
Credit unions would then raise loan rates (78%) and lower dividend rates (77%). NAFCU analyzed, "To avoid any increase in net income, one would expect the opposite behavior. What respondents are saying is that they would generate more revenue and lower costs in order to bear the tax burden. This is not a pro-consumer behavior and policymakers must consider such likely impacts on consumers."
Additionally, credit unions would slow the introduction of new services (70%), 61% said they would increase fees and rates, and 52% would cut costs. A full 94% said they would anticipate their capital levels to drop.