Congress Plans Hearing On Credit Union Tax Exemption

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The credit union lobby is on full alert this week as congressional tax-writers take their first serious look in decades at the credit union tax exemption during hearings on Capitol Hill.

Although the hearing before the House Ways and Means Committee, which is responsible for taxation and other means of raising revenue for the federal government, are aimed at simple review and are not expected to result in any attempts to repeal the tax break, credit union representatives around the country have been put on notice.

CUNA President Dan Mica said last week they have asked credit union representatives to contact their congressional representatives to preempt any potential threats to the tax exemption, even if one is not contemplated.

John McKechnie, chief lobbyist for CUNA, said members of the tax-writing panel have assured him that the credit union review is part of a series of hearings the committee plans to hold regarding the not-for-profit sector, 501 (C) 3 organization, so-called because they are tax-exempt under section 501(C) 3 of the Internal Revenue Code, and no legislation is currently planned regarding the credit union exemption.

"But we don't want to take anything for granted," said the CUNA lobbyist of the group's nationwide alert.

McKechnie noted that Bill Thomas, the California Republican who chairs the Ways and Means Committee, has expressed doubts about the credit union exemption in the past, which poses a potential risk. "We're right to be vigilant," he said.

Thomas and the committee, faced with a federal budget deficit expected to approach $400 billion again next year, have been reviewing the status of more than one million tax-exempt organizations, like not-for-profit hospitals, charities and religious organizations, as part of a broad hunt for new revenue sources.

But the California Republican only has a little more than a year left on his term as chairman because of the GOP's six-year term limits on chairmanships, so attempts to tackle the popular tax exemptions for so many non-profits would face a tough fight on Capitol Hill, observers agree.

The committee had not posted a witness list last week, but among those expected to testify during the credit union hearing are representatives from the Internal Revenue Service, who have met with committee staffers to discuss the credit union exemption in recent weeks; the General Accountability Office, which has published several comprehensive studies on the credit union industry and the tax exemption in recent years, and NCUA. Industry representatives have not been asked to participate.

Hoping To Make Several Points

Murray Chanow, a lobbyist for NAFCU, said his group hopes the witnesses make several points. The first is that the original reasons for the tax exemption remain today, that credit unions are not-for-profit financial institutions that serve their members, and are not publicly owned corporations driven by profit. The second is that credit unions remain democratically controlled, with each member having the same voting powers.

The third is that credit unions remain dedicated to serving the underserved.

And finally, that any attempts to repeal the raise revenues to help close the massive federal budget deficit by repealing the tax exemption will raise negligible revenues, at the expense of antagonizing a broad constituency, tens of millions of credit union members.

Recent government studies have shown that repeal of the credit union tax exemption would raise less than $1.5 billion a year, and that's before credit unions would be allowed to engage in tax-reduction strategies, like deductions, that are common practice among banks and other taxable entities.

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