CUNA has slammed a recent study sponsored by the Independent Community Bankers Association that suggested credit unions should be taxed.
The study, which was conducted by the Tax Foundation at the behest of the ICBA, was distributed to congressional offices just as the credit union faithful were gearing up for the Hike The Hill effort during CUNA's GAC.
"It was a crude, heavy-handed attempt to rain on our parade on the Hill," suggested CUNA's John McKechnie. "But the reaction from the Hill has been, 'Banks don't like the credit union tax exemption, so what else is new?' (The study) was stale and not hard to dispute. But it's important for us to set the record straight."
The 14-page response from CUNA refutes four main points posited in the Tax Foundation study:
* CUs should be taxed because their FOM restrictions have been loosened and their service options have grown since the tax exemption was put in place in the 1930s. CUNA argued the exemption is based on the structure of credit unions, not FOM or product and service restrictions.
"Of course credit unions didn't offer credit cards when the Federal Credit Union Act became law in the 1930s-credit cards didn't exist in the 1930s," noted CUNA's Bill Hampel.
Citing Member Benefits
* The CU tax exemption doesn't create any financial benefit for credit union members. CUNA cited copious examples of the way CU members benefit from the tax exemption in the form of lower interest rates on loans, higher interest rates on savings and annual dividends.
"Credit union members benefit by about $6 to $6.5 billion every year as a result of the credit union tax exemption," Hampel added.
* Instead of returning profits to members, credit unions build up net worth for their owners. "Apparently they still don't understand that credit union members are the owners," Hampel quipped. Moreover the "unusual returns" ICBA claims CUs use their tax status to accumulate are actually mandated by federal law under Prompt Corrective Action.
* The CU tax exemption creates a disruption in the marketplace. CUNA suggested that record profits at banks for the last few years indicate there is no such disruption and noted that if a tax exemption for CUs disrupts the market, then so, too, would the Subchapter S tax status for certain banks, with which bankers don't seem to quarrel. ICBA "claims it is desirable public policy to promote financial institution tax equity, but it hypocritically ignores banking institution Subchapter S election-one of the largest and fastest growing tax 'inequities' in the depository institution sector," CUNA wrote. "It similarly neglects to mention that banking lobbyists, including ICBA lobbyists, were recently successful in significantly widening this tax system inequity."
CUNA has distributed its rebuttal of the ICBA/Tax Foundation study to the leagues for their use at the state level, and when Congress returns from its spring recess, CUNA will deliver its paper to every single Congressional office, as well.
