Tax reform debate as it pertains to the credit union tax exemption hasshifted into high gear after two bank lobby groups stronglyadvocated last week for its elimination and Congress begins writingtax reform legislation.

First out of the gate was the Independent Community Bankers of America, who urged tax reformleaders in the Senate and House and to conduct separate hearingsregarding the credit union exemption in a June 20 letter.

These hearings could examine the cost of the credit unionsubsidy to American taxpayers and whether it has become outmodedgiven the fundamental transformation of the credit union charter,”President/CEO Camden Fine wrote.

The following day, American Bankers Association President/CEOFrank Keating called the exemption ”a depression era tax break thathas outlived its purpose” in a letter to President Barack Obama,Treasury Secretary Jack Lew and Gene B. Sterling, director of theNational Economic Council.

While Keating noted that some credit unions continue to servethose of modest means, large credit unions “have diversified to thepoint that they bear no resemblance to the traditional creditunions that Congress envisioned to be worthy of preferred taxstatus.”

NAFCU President/CEO Fred Becker fired back that same day,penning a June 21 letter to Obama that answered banker claims thatthe exemption costs the federal government $10 billion over a fiveyear period. Instead, he said, eliminating the credit union taxexemption would have the opposite effect on the federal budget,costing $15 billion in lost revenue over the next 10 years.

“These results match the findings of previous studies of theimpact of eliminating the credit union tax exemption in Canada andAustralia, where the number of credit unions was severely reducedfollowing taxation,” Becker said in the letter. “Reducedcompetition for consumer financial services led to higher interestrates on consumer loans and lower interest rates on deposits inboth countries.”

Not satisfied with just defensive talk, Becker also went on theoffensive, pointing out that nearly one-third of banks areSubchapter S corporations and don't pay federal corporate incometaxes, either. And, Becker brought up the fact that banks misused the Troubled Asset Relief Program's small businesslending fund program, using the funds to exit TARP rather than lendto small business.

In addition to stressing that credit unions may not survivetaxation, Becker also pointed out that while only two banks haveconverted to credit union charters in recent years, 33 creditunions have switched to a banking charter. The lack of parityrefutes banker claims of unfair competition, he said.

Credit union lobbyist John McKechnie made note of the timing ofthe letters, because Congress has completed tax reform research andwill soon draft a tax reform bill.

“Adding the ABA letter to ICBA's, it appears that the bank lobbyin DC feels the need to orchestrate some kind of new offensive,” hesaid.

CUNA Executive Vice President of Government Affairs John Magillsaid he was scratching his head a little bit to the timing of thebanker offensive, likening it to showing up for a football gamelate in the fourth quarter.

“Banks are always good at changing the subject, and I have towonder if they have some news and they're trying to change thesubject,” he said. “In the past, when there has been a new $5 feeand uproar, they go to Congress and say 'tax credit unions'. Whenthey were trying to escape the examination of TARP funds, they say'tax credit unions. Whenever the world seems to come down on banks,they change the subject.”

Richard Gose, CUNA's senior vice president of political affairs,said Monday the trade's “Don't Tax My Credit Union” campaign has received almost 300,000 hits on Facebook andTwitter, and CUNA's website that generates letters to Congresssupporting the tax exemption has received 135,000 visits.