CUNA Aims to Set Record Straight on GAO Study; CU Tax-Exemption Would Take 300 Years to Equal S&L Bail Out

WASHINGTON -- CUNA took the Government Accountability Office report requested by Bernie Sanders (I-Vt.) one step further in several categories to reveal additional favorable figures for credit unions in defending against bankers' attacks.

According to CUNA's analysis of the study, it would take approximately 313 years for the credit union tax-exemption of an estimated $1.4 billion a year, as figured by Treasury, to equal the $438 billion (2006 dollars) the federal government spent cleaning up after the failure of the Federal Savings and Loan Insurance Corp. The total taxpayer cost boils down to $166 billion for resolution and $272 billion in total interest costs.

"Three centuries is a long time to wait to get paid," CUNA President/CEO Dan Mica quipped. "The GAO study shows just how absurd is the banker argument that the credit union tax exemption must be erased to help pay government bills."

Based on the GAO study, CUNA Chief Economist Bill Hampel stated, "bank-specific tax breaks are between $1.3 and $1.9 billion per year," conservatively figuring, over and above normal business tax breaks. The GAO report only listed the deduction for excess bad debt reserves at $10 million as the sole bank-specific tax advantage.

However, CUNA estimated banks usage of the $2.3 billion New Markets Tax Credit program, of which banks and other regulated financial institutions make up "the majority." Then using the estimate of banks accounting for 25-50% of the volume of these lending activities, the value to the banks in tax breaks would equal $575 million to $1.15 billion.

CUNA also analyzed the GAO's findings that banks' use of the Subchapter S tax status allows them to pass income taxes through to the shareholders providing a net savings of 22% on the bank and shareholders' taxes compared to Subchapter C banks, or 9.75% of taxable income. At yearend, 2,356 banks were Sub S.

Based on these statistics provided by GAO, CUNA said that the Sub S banks enjoy a tax break of $726 million. Between this, the bad debt loss provision, and the NMTC, CUNA said the bank-specific tax breaks come to $1.3 to $1.9 billion per year.

The GAO could not determine the amount of the $5.3 billion of Export-Import Bank activity that commercial banks accounted for. The Ex-Im Bank is an independent U.S. agency supporting the financing of export activities with the goal of creating and maintaining domestic jobs.

Additionally, CUNA pointed to the abusive tax shelters that have been employed by banks noted by GAO. Hampel wrote in his analysis, "Alarmingly, the GAO further reports that 'According to IRS officials, they have found a number of instances in which some banks have participated in tax shelters and transactions that they view as abusive.' The GAO provides no estimate of the extent of these practices industry wide, but does report on one case in which a court granted the government's motion for a summary judgment, upholding IRS's disallowance of over $9 million in deductions by a large bank."

Sanders had also requested that GAO look at banks' profit growth. GAO found that the net income at banks and thrifts after income has grown more than twice as fast as credit unions: 7% at banks, 8% at thrifts, and 3% at credit unions.

In terms of return on average assets, GAO reported that banks' ROA was 1.27%, while thrifts was 0.96% and credit unions were down at 0.81%. Non-interest income accounted for 43% of bank net operating revenues, but just 34% of thrifts' and 31% of credit unions'. Hampel said this meant, "Banks are very, very profitable, with high and growing profits levels. This certainly puts the lie to the bankers' contention that the existence of credit unions is putting a damper on successful bank operations. If bankers are not content with the very strong profit performance of the past decade, one wonders if anything could satisfy them."

Hampel also contested the smaller banks' arguments that the large banks are the ones that are doing well, but the small ones are not. He cited FDIC data showing that a comparison of ROA over the last five years puts large banks at 1.35%, smaller banks at 1.22% and credit unions at 0.93%.

"Further, as banks have posted five straight years of record profits, the GAO study clearly indicates: The existence of credit unions has no impact on the ability of banks to make money--lots and lots of it," Mica concluded.

The GAO report stated that publicly available information on bank executive compensation was limited, but upon consulting a number of private sources, CUNA found that in 2006, the average bank CEO total compensation was $353,000 compared to $88,000 for credit union CEOs. CUNA said this disparity is apparent when comparing like-sized institutions as well. At a $250 million credit union, the average CEO compensation was $72,000, according to CUNA, while a similarly situated bank CEO made more than double that at $173,000. At institutions over $1 billion, the credit union CEO's average compensation was $389,000 compared to $737,000 for bank CEOs

CUNA plans wide dissemination of its analysis of the results of the Sanders GAO report, including regulatory agencies and Capitol Hill. "It will be widely distributed on the Hill," CUNA Senior Vice President of Legislative Affairs John Magill said of their analysis, including at Hike the Hills.

CUNA Senior Vice President of Political Affairs Richard Gose added, "We're always happy to see the record straight."

--scooke@cutimes.com