Credit union tax exemption is a “least worst” option to increase federal government revenues, according to the Tax Foundation, a Washington-based tax think tank.

The conservative-leaning group Wednesday published a report entitled “Raising Revenue: The Least Worst Options” that named credit unions three separate times as a way lawmakers could reduce the federal deficit as they negotiate fiscal cliff solutions.

The report is replete with banking lobby talking points, charging that credit unions “compete directly with private businesses but have the advantage of not paying federal income taxes” and estimated the value of the “tax benefit to credit unions” at $2 billion to $3 billion per year.

The report did not mention the tax-exempt Subchapter S charter enjoyed by roughly one-third of all banks, which was valued at $2.05 billion in the 2010 federal budget, compared to the $1.27 billion credit union tax expenditure that same year.

Tax Foundation President Scott A. Hodge also erroneously included credit unions among Government Sponsored Enterprises and federally owned businesses, saying they should be required to pay federal income taxes.

NAFCU Executive Vice President of Government Affairs Dan Berger fired off a response letter to Hodge Dec. 6 that called the report a “myopic perspective of including and singling out credit unions.”

Berger wrote in the letter that “credit unions are no more 'federally owned' than the Tax Foundation is 'bank-owned,' as credit unions are not-for-profit cooperatives owned and operated by the millions of Americans who are their members.”

He also countered the reports claim that the credit union tax exemption is worth $2 billion to $3 billion annually, sourcing a 2010 Senate Budget Committee Report that put the estimate closer to $500 million for fiscal year 2013.

John McKechnie, partner at Washington-based lobby firm Total Spectrum, called the report a “disturbing misread” of the credit union tax exemption and said the Tax Foundation should know better.

“If nothing else, this is a reminder that we're in an environment that calls for vigilance when it come to the tax exemption,” McKechnie said.

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Tax Foundation Advocates Taxing Credit Unions to Reduce Deficit

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