As the Senate publicly begins examining comprehensive tax reform, credit unions are warning the Finance Committee that retaining the income tax exemption amounts to a life and death issue.

“Simply put, the tax exemption is an issue of survival for credit unions,” Carrie Hunt, NAFCU’s Executive vice president of government affairs and general counsel, said in a letter to the Senate Finance Committee. “If the tax exemption was removed, many would convert to banks or just go away.”

The Finance Committee solicited tax reform ideas from stakeholders and tax reform promises to be another fight in the ongoing battle between banks and credit unions.

“Tax reform should stop the code from picking winners and losers, which means that businesses offering similar services should be treated equally under the Code,” American Bankers Association President/CEO Rob Nichols said in a letter to the Finance Committee.” As such, the Committee should review and eliminate unnecessary tax preferences for credit unions and the Farm Credit System. “

And Camden Fine, president/CEO of the Independent Community Bankers of America charged that the NCUA has allowed credit unions to expand beyond their statutory mission.

At a tax reform hearing Tuesday, Finance Committee Chairman Orrin Hatch (R-Utah) acknowledged that there are many interests fighting for and against various tax provisions.

“Obviously, there are a number of competing interests out there, with many of them focused on narrow provisions or benefits in the tax code,” he said. “Some of these interests have employed efficient lobbyists to make compelling cases for changes while others have elected efficient legislators who have done the same. “

In his letter, CUNA President/CEO Jim Nussle said because of their cooperative structure, credit unions benefit both members and non-members.

He said that because credit unions take on less risk, they are less affected by the business cycle and can take on a counter cyclical economic force in local communities.

The financial benefit to members and non-members is estimated to have reached $14.2 billion in 2016.

“If taxed, a very significant number of larger credit unions are expected to convert to banks to take advantage of the much greater flexibility of a bank charter, and an equally significant number of smaller credit unions would simply liquidate,” Nussle said. “The remaining credit unions would have to pass the burden of taxation through to their members, because they are wholly owned cooperatives. This would substantially increase the cost of accessing mainstream financial services to American households, by far more than any additional revenue to Treasury.”

Hunt said that credit unions pay property taxes, federal payroll taxes and other local taxes.

Nichols, in his letter, said that credit unions have become indistinguishable from banks and now offer services to anyone, even though their original purpose was to provide credit to “people of modest means”

Fine said that many credit unions are “are multibillion dollar entities competing against much smaller, taxpaying community banks.”

New NCUA rules on commercial lending will remove any meaningful limit on credit union fields of membership, Fine said.

“Many community banks that serve urban and suburban areas have already been squeezed out of consumer lending by tax-subsidized credit unions,” he said.

And he charged that credit unions are leveraging their tax benefit to purchase community banks, while the NCUA has established a “nearly impossible process” for commercial bank purchases of credit unions.”

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Tax Exemption a 'Matter of Survival' for Credit Unions as Tax Fight Flares

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