CU Tax Exemption Safe For Now, But Congress Wants 'Proof'

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The congressional hearings on the credit union tax exemption turned out to be an academic exercise.

At the end of the six-hour hearing before the tax-writing House Ways and Means Committee, Chairman Bill Thomas admitted he has no plans to repeal the tax exemption. "No, I don't think you should remove the tax-exempt status," said the California Republican at the conclusion of the hearing. "But I won't put a period there."

Thomas insisted throughout the hearing that he believes credit unions need to prove that they are serving the underserved, what he sees as their original mission, as the price for their tax exemption.

"When we're dealing with somebody who has a tax-exempt status, as admirable as it is," said Thomas, "we need to determine whether the taxpayers are getting their money's worth."

The Ways and Means Chairman ended the hearing by saying he wants NCUA to collect data to weigh credit unions' service to the underserved and to move towards more transparency, by requiring more public disclosures, such as management salaries.

Earlier, Thomas told The Credit Union Journal that the hearings were part of a series exploring the tax exemption for more than 1.4 million entities organized under section 501(C) 3 of the Internal Revenue Code, including not-for-profit hospitals, religious organizations and charities, as well as credit unions. He said the aim was to conduct a periodic review-the credit union tax exemption had never been formally reviewed since its enactment more than 70 years ago-into the continued validity of the multitude of exemptions.

"We're just asking questions," Rep. Bill Thomas told The Credit Union Journal, during a break in the hearing. "This is just a series of hearings to determine whether tax-exempt organizations continue to deserve their tax exemption."

Mobilized Might

Still, the credit union movement mobilized its lobbying might for the rare congressional session, sending letters and emails to members of the tax-writing panel in support of the tax exemption. More than 150 credit union executives from 25 states turned out for the hearing, dwarfing the turn-out of bankers, who were lobbying the lawmakers to consider at least partial repeal of the exemption, for large, diversified credit unions. Several bankers attending the session lamented the fact they couldn't turn out more than a handful of compatriots to illustrate to Congress their interest in the issue.

The tactics of the credit union lobby, however, angered Thomas, who complained about correspondence questioning his motives. Thomas was especially angered by an email sent by Texas CU League President and recent CUNA Chairman Dick Ensweiler to credit union executives in the days before the hearing telling them that Thomas's time as chairman of the committee was short, with just a year left on the six-year term limit imposed by Republicans on all committee chairman, so that his power was limited.

"The good news is at the end of next year, Bill Thomas will no longer be chairman of that committee, and a more credit-union friendly face is likely to take his place. The bad news is he has a year to pursue CUs if he chooses to," Ensweiler wrote in the Oct. 27 e-mail obtained by The Credit Union Journal.

"I am offended by those people who say this isn't our job," said Thomas, apparently referring to the Ensweiler e-mail, which had been publicized two days earlier.

But Ensweiler's point was well-taken by lobbyists both for and against (bankers) credit unions, who recognize that Thomas would have a hard time selling a tax on such a broad base of credit unions to Republican leaders that could anger millions of voters just as mid-term congressional elections are approaching.

The estimated gain in revenues, projected at less than $1.5 billion a year, would do little to help balance the gaping $400 billion federal budget deficit, the lobbyists explain. "It would be difficult to convince the (Republican) leadership," said one long-time credit union lobbyist.

CUNA President Dan Mica said he was pleased with Thomas' remarks disavowing any plans for a credit union tax. When added to similar remarks by Treasury Secretary John Snow, and a letter from President Bush supporting the tax exemption, it makes for a strong defense in the future, said Mica.

Bankers Are Sanguine

Mica said Thomas told him in a meeting three days before the hearing he had no intention to challenge the credit union tax exemption with legislation. Mica said he informed he credit union leaders of his meeting with Thomas.

The bankers were sanguine, even as the hearing commenced. Both Jeff Plagge, president and CEO of First National Bank of Waverly (Iowa), who was appearing on behalf of the American Bankers Association, and Mark Macomber, president and CEO of Litchfield (Connecticut) Bancorp, who testified for America's Community Bankers, told The Credit Union Journal, they know their efforts to tax credit unions have little support in Congress, so far, but they plan to keep on arguing their case in hopes of chipping away at the credit union support.

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