Exemption on the Table
A draft proposal of a report by a presidentially appointed deficit reduction panel includes an option that would eliminate many tax exemptions, including the one for credit unions.
The report, released on Nov. 10, doesn't cite credit unions by name but suggests eliminating "all $1.1 trillion in tax expenditures."
It does, however, cite other tax deductions that should be eliminated, including one for mortgage interest.
Estimates vary on the revenue that the federal government would receive from taxing credit unions at the going corporate tax rate. When the Treasury Department did an analysis in 2005, it estimated the annual revenue at $1.39 billion, while Congress' Joint Committee on Taxation estimated $1.30 billion. The Tax Foundation, in a study funded by the Independent Community Bankers of America, concluded during that same year that that the annual revenues from such a tax could be as high as $3 billion.
The commission's proposal, which is still being debated among the 18-member commission, combines tax increases and spending reductions that it estimates would cut $4 trillion in projected deficits by 2020.
Officials of CUNA and NAFCU said they would vigorously fight any effort to tax credit unions.
"If some of these recommendations are adopted as released, they could effectively eliminate the credit union tax exemption, an outcome which we adamantly oppose, of course. Moreover, the co-chairs' suggestions paint with the broadest possible brush and- outside of reducing spending and raising revenue-take little or nothing into consideration about the consequences of the proposals. Such as, if taxed, could credit unions as cooperative, not-for-profit financial institutions continue to effectively serve their members? Our answer: Absolutely not!" CUNA President/CEO Bill Cheney said in a statement.
NAFCU Executive Vice President Dan Berger predicted that before the commission finishes its work the credit union tax exemption will remain untouched.
"The draft is a starting point. But there is no appetite on Capitol Hill to tax credit unions. I have not heard any support from people on either side of the aisle on the Hill for taxing credit unions," Berger said.
Taxing credit unions is a perennial subject whenever the government is looking to find ways to raise revenue. Last summer, President Obama's Economic Recovery Board raised the possibility in a report and noted that eliminating the exemption would "raise revenue and level the playing field but would clearly raise taxes on credit unions."
Banks have long urged that the tax exemption be eliminated.
The deliberations of the deficit reduction commission have a long way to go.
If 14 of the panel's members approve the recommendation it will be sent to Congress.
The final report is scheduled to be released on Dec. 1.
The draft proposal suggests that eliminating the tax credits could be done at the same time as simplifying the tax rate system. One proposal would result in income tax rates ranging from 8% to 23%. Currently the range is 10% to 35%.
The draft also calls for cuts in military spending and in social programs, including a reduction in Social Security benefits and a gradual increase the age at which people can receive full Social Security benefits from 67 to 69.
The commission is chaired by former White House Chief of Staff Erskine Bowles and former Senate Majority Whip Alan Simpson. Bowles served in the Clinton administration and Simpson was in the GOP leadership from 1985 to 1995.