When it comes to the crdit union tax exemption, corporate credit unions may not come to mind first, but they have an awful lot at stake, noted one person.
Sheri Ledbetter, director of public affairs for Western Corporate FCU (WesCorp), said total corporate credit union assets totaled $110 billion at year end 2005; $73 billion without including U.S. Central. This much money does make corporate CUs a tempting target, she acknowledged.
"Corporates are credit unions and are structured the same way-we have volunteer boards, the whole nine yards. We enjoy the tax exemption because we are credit unions. If credit unions lost the exemption, we would as well."
In response to an inquiry by The Credit Union Journal, Ledbetter researched the potential cost if the corporate tax exemption were lost. She said there are not a lot of hard numbers, but President Bush's recently released budget proposal estimated potential tax revenue had credit unions been taxed was $1.29 billion in 2005. The budget estimated this figure would increase slightly to $1.37 billion in 2006, and put the total potential tax for 2007-20011 at $8.22 billion.
Ledbetter cautioned these figures are only estimates. "The highest level of corporate income tax is 37%. I don't think all corporates would pay the highest level."
So far, she noted, the bank lobby has not singled out corporate CUs in their attempts to impose taxation on credit unions. "Bankers have tried to split the industry-big versus small, state versus federal-but they haven't brought up corporates, which is nice. We're in this with all credit unions, whether they are members or not, because maybe someday they'll be a member."
WesCorp's economists have had numerous conversations about the potential for taxation, Ledbetter said. For example, they have raised the question of whether a tax on corporate CUs represents "triple taxation." If corporates are taxed, is it, therefore, also a tax on credit unions and a tax on members of CUs?
"We don't know the answer, but this is a question that needs to be asked," she said. "We haven't done analytical number crunching on the taxation issue; just philosophical discussions, such as triple taxation. We have not done analysis because we keep getting reassurance from legislators. It would take an act of Congress to tax credit unions, and there's not even a bill."
Ramifications Not Pretty
So what would happen if corporates were taxed? According to Ledbetter, there would be a far-reaching ripple effect: less money to credit union members because the credit unions that are corporate CU members must pay more, and less money to capital for the corporates, which affects all aspects of their balance sheets.
"Taxation would cut into retained earnings. If it is being taken out and given to the government, that is less to the member credit unions. We would have to look at our business model and consider raising prices. If so, eventually, consumers would lose because credit unions would have to raise their prices."
Ledbetter had a question for those who wish to impose corporate taxation on CUs: would credit unions then get full powers as retail banks? "Would it throw the whole issue of field of membership out the window? This applies to credit unions and corporate credit unions, because corporates have fields of membership, also. Would credit unions apply for tax credits, or convert to Subchapter S? We look at other credit union movements where credit unions pay taxes-such as Australia and Canada-and there are lessons learned there. Australian credit unions lost their identity. They use the word 'bank' in their marketing materials. And, they lost their social responsibility mandate."
Getting Beyond The Philosophical
WesCorp does not have the answers to these questions, she said. "If taxation ever becomes a real threat, then we'll have to power down and move from a philosophical discussion and get answers."
Ledbetter noted CUs only have 6% of total household assets in the United States, so she wonders what kind of threat credit unions are to banks. She cited figures that show consumers saved $6 billion annually in fees, thanks to CUs being in the marketplace as an alternative to banks.
"Removing the tax exemption would impair that," she declared. "We don't want to let the IRS in the door at all. We don't want to be carved out. We're a system player-all for one and one for all."
