Last week, credit unions’ federal tax exemption appeared to be in jeopardy. H.R. 6474 wouldhave gradually repealed credit unions’ tax-exempt status over fiveyears. Fortunately for credit unions, a spokesman for Rep. DennisRoss, the bill’s sponsor, explained that the inclusion of this inthe bill was accidental, and it will be deleted by a manager’samendment.

While credit unions seem to have dodged this lob for now, it diddraw attention to the credit union tax exemption, which the bankinglobby is sure to relish. The issue has been brought up time andagain, and particularly since the economic crisis and the resultingSimpson-Bowles commission, but this was the first time creditunions were named specifically in federal revenue legislation indecades, intentional or not.

Credit unions could certainly survive a 15% to 35% tax hit, butthey would come out looking nothing like they do today. Creditunions’ net income in aggregate was 86 basis points as of thesecond quarter, so a tax would very much change the way theyoperate. Credit unions with less than $50 million in assets wouldessentially be wiped out if this were to come to fruition. Creditunions with $10 million to $50 million in assets have an aggregatenet income of 30 basis points, according to a report from CatalystStrategic Solutions. Those $2 million to $10 million have netincome of 6 basis points. The credit unions smaller than $2 millionin assets are already at a negative 49 basis points. Even the $50million to $100 million category are at 45 basis points in netincome.

The credit union community could survive, but the worst resultwould be that they would be working to pay the taxman rather thanhelping their members. With all of the other regulatoryrestrictions and burdens, what would be the point? A tax on creditunions would leave many moderate-income Americans out in the cold.It would eliminate the local, community-oriented nature of mostcredit unions. There wouldn’t be a reason for a true grassrootsmovement like Bank Transfer Day. Taxing credit unions would giveAmericans less, not more.

No, the credit union philosophy is worth more, as panelists inCredit Union Times’ Not For CEOs session held lastweek. Panelist Teresa Halleck of San Diego County CUenthusiastically defended the ‘not-for-profit, not-for-charity, butfor-service’ philosophy credit unions bathe in. It’s “what makes usnot Wells Fargo,” she said, pointing out that her credit union isthe title sponsor of the Poinsettia Bowl every year. Banks have bashed credit unions that spend this kind of money,but Halleck pointed out that the bowl falls during a slow economicperiod in her region, and that event brings in money to all thelocal restaurants and shops, helping the businesses and increasinghours and tips for their employees–a very smooth and well-supporteddodge of the banker spin. The credit union philosophy helps keepcredit unions stopping to smell the poinsettias.

On the other hand, Greg Barnes with One Nevada CU in Las Vegaspointed out that his credit union serves a low-credit score area,even when it’s not in a recession. One Nevada offers payday loanalternatives with educational pieces and incentives intended tosteer members away from the payday loan shops that litter thearea. Plus the credit union’s fees are much lower. He said hedidn’t want to refer to his credit union as a “second-chance”institution but often that’s what it is for members. With the solidwork One Nevada is doing, maybe it won’t be one day. Another scorefor credit unions.

California and Nevada Leagues’ Carol Payne very enthusiasticallychimed in, “It’s about emotions, the emotional attachment membersfeel to their credit union.” Emotional attachments like you’ll seein our article this week about how Alabama Telco CreditUnion helped make Glenn Sasser and his late wife’s dreams areality.

One wicked curve that credit unions were unable to dodge was theNCUA’s 6.1% budget increase for a total of $14.5 million. However,the collective bargaining agreement for the NTEU employees isindexed to the federal pay scale, which means if the federal payfreeze remains in effect, so will it for the NCUA. That would pullthe NCUA budget increase back $12.8 million to a more reasonable$1.7 million. Still, in a time when credit unions are cutting theirbudgets and staffing left and right, in part to deal withregulatory burden coming from the NCUA, CFPB and elsewhere, theagency should do the same.