Tax reform debate as it pertains to the credit union tax exemption has shifted into high gear after two bank lobby groups strongly advocated last week for its elimination and Congress begins writing tax reform legislation.
First out of the gate was the Independent Community Bankers of America, who urged tax reform leaders in the Senate and House and to conduct separate hearings regarding the credit union exemption in a June 20 letter.
These hearings could examine the cost of the credit union subsidy to American taxpayers and whether it has become outmoded given the fundamental transformation of the credit union charter,” President/CEO Camden Fine wrote.
The following day, American Bankers Association President/CEO Frank Keating called the exemption ”a depression era tax break that has outlived its purpose” in a letter to President Barack Obama, Treasury Secretary Jack Lew and Gene B. Sterling, director of the National Economic Council.
While Keating noted that some credit unions continue to serve those of modest means, large credit unions “have diversified to the point that they bear no resemblance to the traditional credit unions that Congress envisioned to be worthy of preferred tax status.”
NAFCU President/CEO Fred Becker fired back that same day, penning a June 21 letter to Obama that answered banker claims that the exemption costs the federal government $10 billion over a five year period. Instead, he said, eliminating the credit union tax exemption would have the opposite effect on the federal budget, costing $15 billion in lost revenue over the next 10 years.
“These results match the findings of previous studies of the impact of eliminating the credit union tax exemption in Canada and Australia, where the number of credit unions was severely reduced following taxation,” Becker said in the letter. “Reduced competition for consumer financial services led to higher interest rates on consumer loans and lower interest rates on deposits in both countries.”
Not satisfied with just defensive talk, Becker also went on the offensive, pointing out that nearly one-third of banks are Subchapter S corporations and don’t pay federal corporate income taxes, either. And, Becker brought up the fact that banks misused the Troubled Asset Relief Program’s small business lending fund program, using the funds to exit TARP rather than lend to small business.
In addition to stressing that credit unions may not survive taxation, Becker also pointed out that while only two banks have converted to credit union charters in recent years, 33 credit unions have switched to a banking charter. The lack of parity refutes banker claims of unfair competition, he said.
Credit union lobbyist John McKechnie made note of the timing of the letters, because Congress has completed tax reform research and will soon draft a tax reform bill.
“Adding the ABA letter to ICBA's, it appears that the bank lobby in DC feels the need to orchestrate some kind of new offensive,” he said.
CUNA Executive Vice President of Government Affairs John Magill said he was scratching his head a little bit to the timing of the banker offensive, likening it to showing up for a football game late in the fourth quarter.
“Banks are always good at changing the subject, and I have to wonder if they have some news and they’re trying to change the subject,” he said. “In the past, when there has been a new $5 fee and uproar, they go to Congress and say ‘tax credit unions’. When they were trying to escape the examination of TARP funds, they say ‘tax credit unions. Whenever the world seems to come down on banks, they change the subject.”
Richard Gose, CUNA’s senior vice president of political affairs, said Monday the trade’s “Don’t Tax My Credit Union” campaign has received almost 300,000 hits on Facebook and Twitter, and CUNA’s website that generates letters to Congress supporting the tax exemption has received 135,000 visits.