Taxes: Banks, CUs Trade Shots as Debate Heats Up
Tax reform debate as it pertains to the credit union tax exemption shifted into high gear when bank lobby groups strongly advocated last week for its elimination as Congress mulls tax reform options from various working groups.
But former congressman and retired CUNA president Dan Mica, who now runs his own lobby firm in Washington, said it’s unlikely any meaningful tax reform will occur this year.
That didn’t stop the Independent Community Bankers of America, from urging tax reform leaders in the Senate and House to conduct separate hearings regarding the credit union exemption in a June 20 letter.
“These hearings could examine the cost of the credit union subsidy to American taxpayers and whether it has become outmoded given the fundamental transformation of the credit union charter,” President/CEO Camden Fine wrote.
The following day, American Bankers Association President/CEO Frank Keating called the exemption “a Depression-era tax break that has outlived its purpose” in a letter to President Barack Obama, Treasury Secretary Jack Lew and Gene B. Sterling, director of the National Economic Council.
While Keating noted that some credit unions continue to serve those of modest means, large credit unions “have diversified to the point that they bear no resemblance to the traditional credit unions that Congress envisioned to be worthy of preferred tax status.”
NAFCU President/CEO Fred Becker fired back that same day, penning a June 21 letter to Obama that disputed banker claims that the exemption costs the federal government $10 billion over five years. Instead, he said, eliminating the credit union tax exemption 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 the impact of eliminating the credit union tax exemption in Canada and Australia, where the number of credit unions was severely reduced following taxation,” Becker said in the letter. “Reduced competition for consumer financial services led to higher interest rates on consumer loans and lower interest rates on deposits in both countries.”
Not satisfied with just defensive talk, Becker also went on the offensive, pointing out that nearly one-third of banks are Subchapter S corporations and don’t pay federal corporate income taxes. And, Becker charged that banks misused the Troubled Asset Relief Program’s small business lending fund program, using the funds to exit TARP rather than lend to small business.
In addition to stressing that credit unions may not survive taxation, Becker also pointed out that while only two banks have converted to credit union charters in recent years, 33 credit unions have switched to banking charters. The lack of parity refutes banker claims of unfair competition, he said.
Credit union lobbyist John McKechnie made note of the timing of the 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 lobby in D.C. feels the need to orchestrate some kind of new offensive,” he said.
Perhaps, but Mica said he doubts major tax reform will be achieved.
“There could be some piecemeal tax reform, but a major bill this year is going to be almost impossible,” Mica said. “Republicans are split among themselves, and until they get their act together, I don’t think anything is going to happen.”
The Democratic party has some division, too, he said. Other influences Mica said will impact tax reform–or a lack thereof–include a recovering economy that takes the pressure off the federal government’s need for revenue, and a president who is cautious to sign any tax bill.
“I’m not saying it will go away, but from the subtle signs I’ve seen, the issue of tax reform will be kicked under the table,” he said, adding, “but then again, I never say never when it comes to Congress.”
Mica applauded CUNA’s “Don’t Tax My Credit Union” campaign that provides credit unions with marketing materials and directs members to a website that generates letters to members of Congress. Although he said he’s heard some criticize the campaign for launching before any tax reform legislation was written, Mica said credit unions should be proactive, not reactive.
“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 and Twitter, and CUNA’s website that generates letters to Congress supporting the tax exemption has received 135,000 visits.
Should banks and credit unions face a tax reform show down, Mica said based upon history, he’s confident credit union members would rise to the occasion and lobby Congress in support of the exemption. Mica recalled the last time the exemption was threatened. And said he was stunned at how much support credit unions received during debates on television and radio in which he faced off against banking lobbyists. Not only callers, but even employees working in the studio voiced support for credit unions and opposition to banks.
“And that was back when [banks] were in relatively good favor,” he said.