The day before credit union trade associations met with a House Ways and Means Committee working group last week to talk taxes, President Barack Obama released his 2014 budget, which describes the credit union exemption as a “tax expenditure” worth $9.5 billion over four years.
That’s more than twice the figure the Congressional Joint Tax Committee estimated in February when it set the exemption value at just $3.9 billion over four years.
GAO Puts 2011 Exemption at $1.1 Billion
Credit union income was listed first in the financial institutions and insurance section of Obama’s 2014 budget expenditures estimates, available on the White House’s website.
The bank Subchapter S tax exemption was not listed among the expenditures.
The list included nearly 200 items, including some exemptions that seemingly have no chance to be eliminated, such as the exemption on employer health care premium contributions and the mortgage interest deduction, the top two expenditures in terms of potential fiscal impact.
In the summary section, the president’s budget proposes to raise “$580 billion in additional revenue relative to the end-of-year tax deal, from tax reform that closes tax loopholes and reduces tax benefits for those who need them least.”
As Congress debates tax reform, which figure will lawmakers cite?
“People will pick the number they want for political purposes,” said NAFCU President/CEO Fred Becker. “No doubt, some will cite the president’s number, but we hope those who do will make an effort to know those on the Hill on the joint committee came up with their own number that is substantially less.”
The April 11 working group meeting included Ways and Means members Adrian Smith (R-Neb.), John Larson (D-Conn.), Aaron Schock (R-Ill.) and Richard Neal (D-Mass.), about a dozen congressional staff members, and representatives from CUNA and NAFCU.
The working group will forward its finding to the Joint Committee on Taxation, which will compile all comments and submit a report to the full Ways and Means Committee by May 6.
Becker said NAFCU presented its commissioned tax study to the working group, highlighting the report’s discovery that tax-exempted credit unions provide $10 billion in annual savings to Americans. NAFCU generally cites the JCT’s numbers on the tax exemption, he said.
Becker said he doesn’t think the credit union industry would survive taxation. Credit unions would have to raise loan rates, charge higher fees and compromise service to make room on the balance sheet for taxes.
“As a result, I think they will all convert to banks,” he said, “which is what the bankers essentially want.”
The value of the credit union tax exemption is hard to pin down, because it’s tough to predict how credit unions would react to being taxed, said CUNA Chief Economist Bill Hampel. That uncertainty makes the assumptions used by those who estimate the tax exemption’s value important, he said.
Because many credit unions have more than enough capital to meet NCUA requirements, they could reduce income to minimize their tax burden. That would minimize the income gained from eliminating the tax exemption, he said.
Additionally, Hampel said credit unions may convert to mutual savings bank charters, further minimizing projected revenue.
CUNA’s numbers estimate credit unions produced $8 billion worth of savings, which includes both $6 billion in direct savings comparing credit union rates and fees to banks, and another $2 billion in savings thanks to the moderating influence credit union competition has on bank pricing.
CUNA also uses the JCT’s exemption numbers when speaking and writing to congress.
John Magill, CUNA executive vice president of governmental affairs, said the working group asked a couple of questions about the original reason behind the credit union tax exemption, and that he felt overall that credit unions made a strong case.