The President's Economic and Recovery Advisory Board has drawn letters from both CUNA and NAFCU after its Aug. 31 report mentioned taxing credit unions as a potential way of improving the federal tax system.
CUNA CEO Bill Cheney used his letter to point out that things which could be considered 'tax distortions' were actually the results carefully thought out public policy.
"In point of fact, many of the 'distortions' of the current tax code are the intended consequences of wise economic policy," Cheney wrote in his Aug. 31 letter. "Indeed, as you well know, most tax preferences were enacted with the express purpose of fostering certain types of economic activity that Congress wished to encourage. A tax preference that advances public policy so that the benefits exceed the foregone tax revenue can be an extremely cost effective way of advancing important goals. As history has shown, this is certainly the case with the credit union tax exemption."
NAFCU CEO Fred Becker attacked the report's assertion that the tax exemption gives CUs a competitive advantage since it comes with a large number of rules attached.
"The Board's assertion that credit unions operate at a competitive advantage to other financial institutions is, quite simply, untrue," Becker wrote on Aug. 31. "There are a number of statutory and regulatory burdens under which credit unions operate that make the credit union charter less attractive. For example, any individual may walk in to a bank and become a customer. A credit union, by contrast, can only accept members from within its well defined field of membership. Credit unions cannot access capital in the same way as banks. Credit unions have strict requirements regarding member business lending and also more strict capital requirements than banks. These are but a few of the legal constraints that are confined to the credit union industry," he wrote.
"I am quite certain, on balance, these burdens outweigh the benefit of the tax exemption. Indeed, the fact that there have been only two occasions where a bank converted to a credit union charter is ample evidence that the competitive advantage credit unions supposedly enjoy is more fiction than fact," Becker added.