Tax reform debate as it pertains to the credit union tax exemption shiftedinto high gear when bank lobby groups strongly advocated last weekfor its elimination as Congress mulls tax reform options fromvarious working groups.

But former congressman and retired CUNA president Dan Mica, whonow runs his own lobby firm in Washington, said it's unlikely anymeaningful tax reform will occur this year.

That didn't stop the Independent Community Bankers of America, from urging taxreform leaders in the Senate and House 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 disputed banker claims thatthe exemption costs the federal government $10 billion over fiveyears. Instead, he said, eliminating the credit union tax exemptionwould have the opposite effect on the federal budget, costing $15billion 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. And, Becker charged 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 banking charters. 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,and the next step would be writing a tax reform bill.

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

Perhaps, but Mica said he doubts major tax reform will beachieved.

“There could be some piecemeal tax reform, but a major bill thisyear is going to be almost impossible,” Mica said. “Republicans aresplit among themselves, and until they get their act together, Idon't think anything is going to happen.”

The Democratic party has some division, too, he said. Otherinfluences Mica said will impact tax reform–or a lackthereof–include a recovering economy that takes the pressure offthe federal government's need for revenue, and a president who iscautious to sign any tax bill.

“I'm not saying it will go away, but from the subtle signs I'veseen, the issue of tax reform will be kicked under the table,” hesaid, adding, “but then again, I never say never when it comes toCongress.”

Mica applauded CUNA's “Don't Tax My Credit Union” campaign that provides credit unions with marketing materialsand directs members to a website that generates letters to membersof Congress. Although he said he's heard some criticize thecampaign for launching before any tax reform legislation waswritten, Mica said credit unions should be proactive, notreactive.

“Once you're in the bill, you're behind the curve,” he said.

Richard Gose, CUNA's senior vice president of political affairs,said 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 135,000visits.  

Should banks and credit unions face a tax reform show down, Micasaid based upon history, he's confident credit union members wouldrise to the occasion and lobby Congress in support of theexemption. Mica recalled the last time the exemption wasthreatened. And said he was stunned at how much support creditunions received during debates on television and radio in which hefaced off against banking lobbyists. Not only callers, but evenemployees working in the studio voiced support for credit unionsand opposition to banks.

“And that was back when [banks] were in relatively good favor,”he said.