WASHINGTON – Over the years CUNA has had a turn the other cheek attitude to much of the bankers' assaults, but those days are over as CUNA is letting loose on what it calls banks' hypocrisy. A recent article published in The Capital Times, a Wisconsin-based newspaper, outlined how banks in that state are setting up false subsidiaries to shelter their income from state taxes. CUNA is making the most of this and other information to make its case for the hypocrisy of the banking industry, which is trying several avenues to reduce banks' tax burden. While states are facing their worst deficits in years, The Capital Times reported, Wisconsin banks have cut their payout to the tax man by more than 55% over the past five years. In 1995, banks paid $39.2 million in state taxes, but that amount dropped to $17.3 million by 2000, the most recent and complete data available. The article states that the Wisconsin Department of Revenue estimates that 80% of banks have established subsidiaries in Nevada, a state with no corporate income tax, to legally avoid paying taxes. Banks in the state are going so far as to borrow funds from the shell subsidiaries and deducting the interest paid on the loans on their Wisconsin tax returns. Other than avoiding taxes, "There really isn't any other reason," Wisconsin Bankers Association President Chuck Runde, also president of First National Bank of Platteville told The Capital Times. Though some decline can be attributed to bank mergers, the article recognized, Wisconsin banks actually reported more than $200 million in net losses to the Department of Revenue in 2000. At the same time the net income of Wisconsin banks skyrocketed 58.6% between 2000 and 2001 to $980 million. Reports like this one make CUNA Senior Vice President of Government Affairs John McKechnie's blood boil. He is hoping it will have the same effect on members of Congress when bankers' raise the credit union tax-exemption issue. Over the Memorial Day recess at the end of May and the beginning of June, McKechnie and his colleagues at CUNA personally distributed copies of The Capital Times article to members of the House Ways and Means Committee and the Senate Finance Committee, which write the federal tax laws, as well as the members of the Wisconsin delegation. "People on the Hill have been bemused, I think, because they have heard the bankers' complaints," McKechnie said of the reaction he has received from lawmakers. "Apparently it is (legal), but it certainly isn't right," he added, noting previous bankers' comments calling credit unions unpatriotic because of their federal tax exemption. "We've been stepping up our efforts of recent to point out some of the bankers' hypocrisies," McKechnie said. It is not necessarily a more proactive approach, he said, "it's just the bankers are giving us more opportunity to be proactive." The article's findings in combination with the Subchapter S expansion banks are lobbying for and their opposition to credit unions' tax exempt status "doesn't pass the laugh test," McKechnie said. While McKechnie said that CUNA is only taking advantage of the numerous situations where banks have revealed their `hypocrisies,' the organization has also created its own opportunities. When the banks posted record quarterly earnings in the first quarter of 2003, CUNA used the figures to deflate bankers' claims that tax-exempt credit unions are siphoning off their profits. Banks earned $29.4 billion in the first quarter of 2003, the most ever and over $2 billion more than the previous record from the third quarter of 2002, according to Federal Deposit Insurance Corp.'s Quarterly Banking Profile. McKechnie pointed out that at that pace, banks' 2003 profits will easily exceed the record $104 billion from last year. "If banks continue on this current track, they will post profits equal to the 31st largest economy on the planet," McKechnie said in a statement, citing figures posted by the World Bank. "That would outrank the economies of such countries as Greece, Israel, South Africa and Singapore." CUNA also pointed out that 2002 was the tenth in 11 years that banks posted record earnings. Additionally, banks' return on assets has remained well above 1% over the past 10 years and is heading toward the eleventh, CUNA said. Banks' first quarter ROA averaged a record 1.38%. "For every unprofitable institution, there are plenty of extremely profitable institutions," CUNA President and CEO Dan Mica explained. "They face competition with credit unions on a daily basis, and all these little institutions are doing quite well." CUNA also recently devoted nearly six pages of its 14-page official comment letter to NCUA regarding its proposed member business lending rule to attacking the American Bankers Association. "The charges the ABA has made against the member business loan proposal are very similar to the ones they repeatedly made against the field of membership proposals the agency issued to implement the Credit Union Membership Access Act. Their charges are as unoriginal as they are unfounded and appear to be motivated not by genuine public policy considerations but by a singular desire to limit the growth of credit unions in order to increase the domination of the banking industry in the financial services market," CUNA wrote. Most recently, CUNA used a story in its online news service News Now to attack a column ABA Economist Keith Leggett wrote for ABA Bankers News slamming credit unions' tax exemption. CUNA pointed out that the very next column described the ABA's efforts to help banks avoid corporate taxes. In the article, McKechnie emphasized that banks do not pass their tax savings on to their customers whereas credit unions pass it on to their member-depositors. [email protected]