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TALLAHASSEE, Fla. – A new report from the Consumer Federation of America takes dead aim at the study done earlier this year by Florida TaxWatch which raised the issue of whether credit unions’ tax exemption could be justified. The conclusion reached by the CFA’s report that was written by Dr. Mark Cooper, director of research is simple: not only is there no justification for removing credit unions’ tax exemption, but “the benefits that credit unions deliver to the public far exceed the costs, as measured by the tax exemption.” Commenting on the study from the non-profit Florida TaxWatch, Dr. Cooper wrote in his report that the examination “was one-sided in its treatment of credit unions and presents an extremely distorted view that could have the impact of misleading policymakers who must establish sound fiscal tax policies.” He continued to describe the study as being “similar to other analyses prepared by banks in their effort to restrict the activities of credit unions.” Specifically, he said, the TaxWatch report fails to estimate the benefits of credit unions, fails to examine the favorable tax treatment and other subsidies enjoyed by banks, and fails to analyze what would happen to credit unions if their tax status was changed. “It is absurd to suggest that 4 million Floridians and 84 million Americans have joined credit unions because of a $25 per year tax exemption.,” wrote Dr. Cooper. The Florida TaxWatch study created a hypothetical credit union and conducted a lengthy analysis of the taxes that might be paid if it was treated like a bank. Based on that information, the study which was partly funded by the Florida Bankers Association, concluded that “the unequal treatment of banks and credit unions has become harder to justify.” (CU Times, April 23). As for the TaxWatch study’s claim that the tax exemption creates the basis for unfair competition between credit unions and banks, Dr. Cooper stated that is a false assumption. The value of subsidized insurance and loans for all banks and tax exemptions for small banks is far greater, in absolute and relative terms, than the value of the credit union tax exemption, he wrote. “Blocking our bank subsidies and credit union benefits, the tunnel vision of Florida TaxWatch produces a distorted and misleading picture,” he wrote. In addition, wrote Dr. Cooper, “suggestions that substantial tax revenue could be raised by eliminating the tax exemption are also incorrect.Estimating income taxes that credit unions would pay misses the fundamental point that as non-profits they do not behave like banks.” Then what explains the growth in the number of credit union members? “Credit union success derives from their non-profit, democratically controlled, and member focused principles.Credit unions eliminate the incentive for financial institutions to exploit their advantages and subject management to member control. They create a greater basis for trust between the credit union and their member/owners that facilitates the financial transactions. These organizational characteristics elicit greater cooperation and voluntary services provided by members,” he wrote. In addition, he stated, “credit union effectiveness is reinforced by a commitment to important public values.from a societal point of view, credit unions provide an important institutional alternative for consumers. Not only do they deliver benefits to their members, but also their competitive activities discipline the behavior of banks.” He elaborated, stating that “the tax status of credit unions is an essential element of their character, providing both a source of capital and a driver for management and member behavior. Altering the tax treatment would change the fundamental nature of the institution, depriving members of significant benefits.” Dr. Cooper backed up his conclusions with a series of charts. For example, when he discussed the differences in the rates and charges assessed by credit unions from their members compared to banks – “credit unions clearly pay more to members for the use of member deposits and charge less for services rendered to members” – Dr. Cooper used statistics from Bank Rate Monitor, a national database, and a national survey of bank fees that was conducted by US Public Interest Research Group (USPIRG) to illustrate the growing gap between credit unions’ and banks’ rates and fees (see chart). “The gap has existed for quite some time and in some respects appears to be growing. In fact, it can be argued that the growth in the size of banks has driven them farther away from the customer service-oriented approach of the credit unions,” he wrote. Some of the other charts Dr. Cooper included in his reports covered areas such as members’ and consumers’ perceptions and satisfaction with credit unions and banks, a comparison of credit unions’ and banks’ assets, and the growth of credit union members. Mark Ivester, marketing communications director for the Florida Credit Union League explained that the League’s reason for approaching Dr. Cooper to write a report based on his analysis of the Florida TaxWatch study was “we thought it would be useful in our discussions if we had a definitive and well thought out report that could be presented as an alternative to consider to the Florida TaxWatch piece.” Dr. Cooper wrote a similar report in 1999 for the California Credit Union League, and that’s what prompted Ivester to ask him to write the report for FCUL. Ivester stressed that, “We never told Dr. Cooper what to write. He’d heard of the Florida TaxWatch study, and we gave him a copy when he agreed to write his report for us.” The Florida League wasn’t surprised at Dr. Cooper’s findings, but “we were surprised that it was so well documented. There’s a lot of meat to it. His approach to the tax issue was handled more realistically that the Florida TaxWatch study and it took in to account well-researched facts. “The Florida League always felt the Florida TaxWatch study was done in a vacuum. It was based on a lot of hypotheticals that would never happen in the real world,” said Ivester. Given the current political climate in Tallahassee, the Florida League executive said the League is “realistic enough” to know that “the state government isn’t in any hurry to raise taxes.” He added that, “But we also know that even if the Florida TaxWatch study sits on the shelf and collects dust, somebody some day may come along, blow off the dust, and take a look at it.” In anticipation of that happening, the Florida League has sent copies of Dr. Cooper’s report to every Florida state legislator and to all of the Florida delegates in Congress and the U.S. Senate. Copies were also sent to all the credit union leagues. -

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