I would argue the existence of our industry would be in great jeopardy if credit unions become subject to taxation. Our industry is constrained by regulations that limit our ability to expand our field of membership, increase capital beyond our net revenue, business loans are capped and yet credit unions maintain their charter. Why? I would argue the tax-exempt status plays a significant role in that decision.  If credit unions are subject to taxation, I think that many will give serious consideration to converting to a bank charter.  What benefit remains if credit unions are subject to the same restrictive credit union regulations and pay the same taxes as banks?  This is the “level playing field” bankers want!   

If larger credit unions started to leave the fold, the domino effect could be devastating. Consider all of the league associations and CUNA, NAFCU, NASCUS just to name a few that could potentially lose members and dues if larger credit unions sought a bank charter. Who is going to pick up the tab?

Finally, who will be impacted the most by credit union taxation?  Our members. As we all know, if a business's expenses increase, eventually that cost is passed on to the consumer. 

Frank Padak
President/CEO
Scott Credit Union
Edwardsville, Ill.
Assets
$888 million
105,100 Members

Tax exemption will rear its ugly head during a financial crisis where winners and losers are determined by the government's ability to take as it sees fit for the political expediency and power of a few to cover for its lack of fiscal restraint. The true breaking point in a modern financial crisis in our country has not been found yet as we continue to operate in murky and untested waters. Once the alarm sounds that the ship is sinking, all bets are off.

When you operate as a not-for-profit cooperative with small margins, tax rates become a very big deal with significant impact, and although credit unions would employ defensive tax strategies and restructure their balance sheets and revenue streams to minimize the overall impact of taxation as best as possible, taxation would be funded by credit union members through higher loan rates, higher fees and lower dividends.  Credit unions, through a cooperative structure, operate to keep money in members' pockets that they spend in local economies for basic needs. Taxation removes that local money, only to be spent or redistributed by government as it sees fit and to areas as they determine, which will not be local.  Bottom line, taxation would diminish credit unions' ability to provide cooperative life-line financial services, would diminish credit union members' basic standard of living and would impact local economies through less spending, lower sales tax generation, and inhibited economic growth. To quote Thomas Jefferson, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.” 

Bob Fisher
President/CEO
Grow Financial
Tampa, Fla.
Assets
$1.8 billion
156,500 members

It very well could be. One of my main reasons for attending GAC is to explain our cooperative to lawmakers and educate them about the benefits that credit unions provide to consumers and the economic impact of credit unions in their communities.

Elimination would dramatically affect my credit union. As we continue to struggle with rising expenses related to keeping up with the regulatory burden currently in place. Losing our tax exemption would add yet another process and expense or a need to find ways to offset it. 

Linda White
CEO
United Health Credit Union
Burlingame, Calif.
Assets
$27 million
4,600 members

Not at the moment. Congress is too focused on side issues right now. I do, however, think that option will be on the table during the current administration. When the subject arises, CUs will need to utilize the grassroots campaigns we've used in the past to bombard Congress with correspondence, phone calls and visits explaining the importance of CUs retaining the exempt status and how a change negatively impacts the members.

The first effect is obviously to income. The change in income directly effects the dividend rates we are able to pay and the loan rates we are able to offer. We have to be able to fund operating expenses and capital expenditures that are necessary to serving our membership. As to the question of how much, it will depend on the tax rates implemented and the deductions we'll be allowed to claim. 

Michal Parker
Chief  Financial Officer
Secured Advantage FCU
Simpsonville, S.C.
Assets
$82 million
7,400 members

The credit union tax exemption makes a difference for consumers. Filene research from Professor Steve Swidler of Auburn University shows that Subchapter S banks, which are also exempt from federal corporate income tax but are not cooperatives, do not generally pass on their tax savings to consumers like credit unions do. 

Regardless of what makes sound public policy, though, credit union members must recognize that in the current fiscal environment lawmakers face difficult decisions in balancing spending cuts and raising new sources of tax revenue. Education, medical and senior government benefits are considered sacred. To ensure credit unions are prepared for scrutiny, now is the time to not just live the credit union ethos of people helping people in credit union strategy and actions but also tell the story and invite members to share their credit union experiences. Many credit unions are doing this well. Consider Summit Credit Union's Project Money, which helps families save and pay down debt, or the 300-plus credit unions offering Debt in Focus, an anonymous on-line debt management tool. 

A minority may see taxation of credit unions as part of a corporate social responsibility platform. This is a common view in Canada. The taxation of Canadian credit unions has not eliminated the model, but it has had a negative impact. Although the rate of tax Canadian credit unions pay is a result of strong negotiations and much lower than what other corporations in Canada pay based on capital requirements, there are fewer credit unions in Canada today.

If credit union taxation is implemented, the resiliency of the cooperative model will persevere. However, it will impact Americans' wallets. The shrinking, hard-working middle class will pay more for financial services and earn less on their savings. It will reduce an important check in a profit-driven consumer finance market. It will shrink the number of choices Americans have for their financial services. Some credit unions will change charters, while others will merge to create scale. Consumers, and America, will lose. 

Mark Meyer
CEO
Filene Research Institute
Madison, Wis.

I don't know that the bankers' agenda would gain much traction currently, so right now I think we're O.K.  But we know things change fast, and we must always be prepared to fight that issue. It's important to continue to show that we're using our not for profit status as intended. I see more and more credit unions paying member bonus dividends, efforts like that will show our difference.

On a micro level, to me it's less about preserving the tax-exempt status and more about preserving the financial cooperative model. Our business does not work with shareholders. But from a movement standpoint, losing our tax-exempt status would hinder many credit unions financially. Margins are already extremely tight, and many would be forced to make the eventual decision of merger, liquidation or conversion. 

Patrick Basler
President/CEO
First Financial Credit Union
Skokie, Ill.
Assets
Over $62 million 
8,800 members