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WASHINGTON-Despite banking groups’ best efforts, credit unions survived unscathed from last week’s hearing on the tax-exempt sector. House Ways and Means Committee Chairman Bill Thomas (R-Calif.) held a hearing entitled “An Overview of the Tax-Exempt Sector” April 20 looking into whether an overhaul of the tax code for nonprofits is necessary. Credit unions were mentioned only once in passing-just as an example of a non profit business-by a witness throughout the three-hour hearing. Last April, Thomas said he would be looking into the societal value of certain tax-exempt entities, including hospitals and credit unions. While the nonprofit hospitals took a good bit of the heat during last week’s hearing, the credit unions were untouched much to the dismay of the banking industry. CUNA and NAFCU felt they had mounted a pretty solid defense of the credit union tax exemption in anticipation of a long-awaited hearing. “We worked hard last year to make sure that hearing didn’t occur, at least initially, and through our hard work with the House leadership, we were able to hold that off until now. Chairman Thomas is pretty insistent that he wants to go this route,” CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn commented. Leading up to the hearing, both lobby groups visited friends on the committee. However, NAFCU Director of Legislative Affairs Brad Thaler was cautious leading up to the hearing. “If the issue is not on the table, you ought to be careful that you don’t make the credit union tax exemption the focus of the hearing when the hearing is much broader in scope. They’re going to be looking at the 1.8 million organizations that are tax exempt under 501(c),” he explained. NAFCU’s written testimony submitted for the record pointed out that credit unions represent approximately “one-half of one percent of all federal income tax-exempt organizations.” Thaler added, “We will be submitting a statement defending and supporting the credit union tax exemption and we’ll be talking to our friends on the committee leading up to the hearing, but we don’t need to make this a hearing about the credit union tax exemption because it’s a much broader hearing than that.” There was a lot of talk among the panelists, who represented government entities and tax law academia, during the hearing that a “core rationale” or “criteria” should be developed for entities that qualify for a tax exemption; in the past, the laws were passed piecemeal as issues arose, resulting in a mish-mash of segments of the tax-exempt sector, they said. CUNA Vice President of Communications and Media Outreach Pat Keefe noted the presence of a lot of credit union people in the committee hearing room, which also may have helped deter some of the potentially pointed credit union questions. The bankers had been rumored to be attempting to plant questions with lawmakers. “We have been preparing for this for a long time and while we’re concerned about the content of the hearing and the possible tone of the hearing based on Chairman Thomas’ past remarks, we also feel very confident that our tax exempt status remains every bit as justifiable as it [was] when it was first granted by Congress,” CUNA Senior Vice President of Governmental Affairs John McKechnie said prior to the hearing. “We continue to think the credit union movement enjoys widespread support for what it does for the consumers in this country.” He noted the quality and quantity of support credit unions received last year in the form of letters from lawmakers vowing to defend the credit union tax exemption. CUNA has been employing Hike the Hills and its Straight Talk and Straight to the Point publications to keep lawmakers abreast of the credit union position, CUNA Vice President of Political Affairs Richard Gose added. “We continue to try to combat some of the bankers’ criticism that’s been out there about our tax-exempt status,” he said. “One of the things we always try to focus on, whether it’s a Hike the Hill or just a regular meeting, is our credit union mission and how we are true to that mission. That’s going to be something that’s important and going to hold us in good stead during these hearings.” At the conclusion of last Wednesday’s hearing, Thomas said he expected to hold more focused hearings in the future, possibly at the subcommittee level. CU Tax Exemption Justifiable? Both credit union and bank groups submitted written testimony for the hearing. “NAFCU would like to take this opportunity to emphasize this point to the members of the Committee: the credit union federal income tax exemption benefits not just credit unions and their members, but all who have savings in any regulated depository institution.” the group’s testimony read. “While credit unions – like all financial service providers – have evolved and grown over the years to meet the changing financial services needs of their members, the basic structure, philosophy and guiding principles of credit unions remain the same today as when the federal income tax exemption was granted to credit unions in 1937.” To the contrary, America’s Community Bankers’ testimony read, “Many cooperative banks, savings associations, and savings banks are cooperatively owned – just like credit unions. Mutual savings institutions do not have shareholders. Their profits are reinvested in the institution, returned to members in the form of higher rates on deposits or lower rates on loans, or given to the community.” Yet, these institutions are taxed. CUNA’s testimony countered, “By way of contrast, mutual savings banks lost their tax exemption because they competed with taxed institutions AND because they engaged in widespread proxy voting schemes and were not democratically controlled (voting was based on the size of each member’s deposit not on the basis of one-member-one-vote as is the case with credit unions).” However, the American Bankers Association, as well as ACB and the Independent Community Bankers of America, stated that the `new breed’ of credit unions have not stuck to credit unions’ original primary mission. [email protected]

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