WASHINGTON-The American Bankers Association last week sent letters to President Obama and members of Congress calling for "the tax status of the credit union industry (to) be reviewed."
While ABA attacks on the exemption aren't new, the trade association is seeking to leverage new discussions among lawmakers about tax reform and the federal deficit.
"Every year the Office of Management and Budget estimates the significant tax cost of this credit union subsidy, which is almost $10 billion over the next five years," wrote ABA President Frank Keating. "With large annual federal deficits, our country can no longer afford to subsidize the $1 trillion credit union industry which increasingly operates like a tax-free banking system. Previous administrations -both Democratic and Republican-have recommended ending the credit union industry's tax exemption. The changes in the nature of the credit union industry and a move by elected officials towards a more sound fiscal policy warrant a re-examination of the industry's tax status."
CUs Targeting The 'Wealthy'
The ABA said the tax exemption has its basis in the expectation by Congress that when it granted the exemption it did so to encourage lending to people of modest means.
"However, credit unions are not required to demonstrate that they are fulfilling this mandate," Keating said. "On several occasions the Government Accountability Office (GAO) has reported that credit unions lagged behind banks in serving low- and moderate-income households."
The letter went on to say credit unions are increasingly targeting wealthier members and stated, "Quite simply, the credit union tax exemption is subsidizing financial services for individuals who do not need taxpayer assistance."
Both credit union trade groups responded to the letter, with CUNA stating the reasons for the federal tax exemption in 1934 remain valid today.
It added that credit unions provide $8 billion in direct financial benefits to 96 million Americans every year.
CUNA also used the ABA letter to reiterate its call for credit unions and their members to participate in its "Don't Tax My Credit Union!" campaign.
Banks Not Paying Taxes
In response, NAFCU CEO Fred Becker said Keating's estimate that the CU tax exemption costs the treasury $10 billion annually is triple the estimate made by the Joint Committee on Taxation. Becker said NAFCU's own research indicates that revoking the exemption would cost the federal government $15 billion in lost income tax revenue over the next 10 years.
Becker also went on the offensive, telling the administation and Congress that "Mr. Keating faied to mention the fact that nearly one-third of banks are Subchapter S Corporations and do not pay federal corporate income taxes themselves.
