Death & Taxes?
American credit unions aren't alone in having strong views on their tax exemption. But while the passion is shared, credit unions outside the U.S. don't all share a view that a tax exemption is deserved-or needed.
At the World Council of CU's conference representatives of movements in Ireland, Poland and the U.S. offered views on the taxation issue.
Moderated by CUNA SVP John McKechnie, the session's participants included Grzegorz Bierecki, president of the National Association of Cooperative Savings and CUs in Poland, Kevin Helferty, a board member with the Irish League of CUs, and CUNA CEO Dan Mica.
McKechnie: Do you think that taxation would destroy the credit union movement in Poland?
Bierecki: As Cromwell said, "No one is safe as long as Parliament is in session." I think it is not an issue for Polish credit unions that we would be destroyed. But it is an issue for our members in that taxation would limit our ability to work for our members. We believe that we as credit unions are institutions of a very special purpose. We don't feel we are financial institutions. We describe ourselves as social institutions, grassroots institutions. We use financial instruments to help achieve the goal of the member. Because of this we believe we deserve the support of the state for the work we do in communities. The tax exemption for us is a kind of recognition of the value of the work by our credit unions.
Helferty: I don't think that the power to tax is the power to destroy. As an individual I don't mind paying my taxes. I think I have a social responsibility to pay my taxes. But credit unions are different and special. The credit union's money is the members' money. I don't like paying my taxes two times. In Ireland, we have two jurisdictions. Northern Ireland is part of the United Kingdom, and we have two different schemes. In Northern Ireland we do not have the same exemption. It can damage the ability of credit unions to grow and to help communities to grow.
Mica: I don't know that taxation would destroy the credit union movement. But absolutely, without a doubt, taxation in the U.S. would fundamentally change the status of credit unions.
I'm convinced of two things. The banks are at an all-time high in their efforts to get credit unions taxed. I don't think they would stop at taxation. The banks want to disassemble the credit union movement. I know there are credit unions that operate as taxed entities. But I do think with our laws and emphasis on the bottom line that it would fundamentally change CUs.
McKechnie: How do you in your dealings with legislators turn discussion away from how a CU is impacted versus the member?
Bierecki: For us the battle for taxation is just one of the fronts. We are having a war with the bankers on a number of issues. Bankers ask today to tax us. What will they ask for tomorrow? They will ask for the same supervisory structure over credit unions. They want to put us into a different league. If they turn us into small banks, they will win. Banks know how to compete with banks. How we convince our Parliamentarians is that they know the work of credit unions. We are everywhere in Poland. They can see and touch our work. That's extremely convincing. We have our members who speak on behalf of credit unions.
Helferty: I don't think that's sufficient. I believe that banks would love us to become more like banks and to operate more like them. I'm not suggesting we shouldn't modernize or adopt new procedures. But I'm very concerned about going down the same slippery slope of offering the same services as banks. If the banks can point to that, it can blur the distinction between credit unions and other financial institutions. I am desperately afraid that regulators will simply not understand or will choose not to understand the difference between banks and credit unions. I think we need to be very clear about what we are.
McKechnie: What about looking the same as banks?
Mica: I respectfully disagree. In 1934 banks fought the Federal Credit Union Act. When credit unions were asking for the power to offer share draft accounts or checking, banks fought that. Yet every year banks go to Congress and ask for more powers.
We must make the argument it's not the products we offer, it's the way we're structured, that we're not-for-profit, that we don't have stockholders. We can't let them define us by products offered. If the banks had their way we would offer no products other than to take long-term deposits for safety, if you will.
We want to be able to address this issue substantively. We want to respond with logic and show how we serve members of modest means. We want to highlight credit union differences, not services offered. And then if we can't beat them logically, we want to beat them politically. We did some research at CUNA that we could have the single largest response in the history of Congress if they were to attempt to tax credit unions. We have almost 200,000 members in every congressional district in the United States. "Bank-like, large credit unions" is a term invented by the banks.
Bierecki: It's not a matter of services delivered; it's not a matter of the size; I would even dare to say a bigger credit union can better serve members and the community. And we have a lot of facts to prove it. We have 76 credit unions and 1.5 million members and 1,500 branches. Ninety-four percent of our members are happy or very happy with our services. There is a temptation, of course, and we have been tempted several times, to think, well, the banks would not attack our tax-exemption status if we do not move, for example, into electronic services. I don't buy this. If the price is to serve our members less, I don't buy this.
Question from Australian in audience: What would your response be to the idea that in developed countries, paying taxes is a very socially responsible thing to do?
Mica: If we want to tax churches and the YMCA and the entirety of society, that's one thing. But in the U.S. credit union loans charge (an average of) 1% less on loans (and pay an average of) 1% more on savings. That helps people, not some corporation. We save bank customers billions of dollars. I would say the rationale is that we are serving a purpose. I think the very existence of credit unions does more to serve a social purpose. I think that's better than sending that money to Washington, where there's an administrative cost to handling that money. I think in America if you do away with credit unions banks could charge any rates they want.
Helferty: I think that a tax on credit unions is a tax on volunteers. In Ireland, the movement is perhaps very conservative. There is a debate going on right now on what services credit unions should offer. Should we form a bank? Buy a bank? Form an insurance company? If there is a burden placed on credit unions then I am as concerned with the regulatory burden as I am with the tax burden. As a volunteer I have limited time; it's the impact on volunteers that I am apprehensive about.
Bierecki: We deliver services that if it were not for us the state would have to deliver through special-purpose agencies. When Poland joined the EU, the whole program to help entrepreneurs began with money coming from Brussels. So what we've done in regions of the country is work with local governments that have a problem with how to distribute these loans. For every zloty you give to our members, we give three zlotys in loans. We calculated and showed them huge savings for the state.
Question from Caribbean CU: Why don't we seek to put legislation on the books that the credit union movement should be exempted?
Hefferty: We fought and lost that argument in Northern Ireland in the 1980s. If you ask government should we be taxed?, then we will only get one answer: Yes. If we ask the revenue authorities should we be taxed, you will get one answer: Yes. In the Republic of Ireland a very successful campaign was fought six years ago. No one in Ireland likes to pay tax. Throughout the country we targeted those in power and chapters got together and formed working groups in every constituency in the Republic. We planned our key messages and sharpened them.
Bierecki: I have had a different experience. We started out being taxed initially. Our movement started in 1992 and we got the tax exemption in 1998 because the government wanted to help us to grow and deliver services to our members. We had a six-year record of operations to justify the support. It was not an issue we were in bad shape. Last year we showed the benefits delivered to the state were 20 times what taxation would deliver. We've been attacked just recently by a government that wanted to remove the tax exemption under the pressure of bank lobbyists. but it's so easy in our country to show the work we do.
Mica: If you are taxed, you have a hard time getting rid of it. If you are not taxed, you have a hard time defending it. We're getting more and more studies in the U.S. and from around the world about the concentrations of wealth, and it's just starting to catch the attention of parliamentarians. How big is too big? How strong is too strong? What can we do about it? Wealth is being concentrated in a few hands.
McKechnie: Do you see any evidence banks in your countries are talking amongst themselves about how to go after credit unions?
Bierecki: The banks in my country are mostly foreign. I can see the same arguments they are making that are being made in the U.S.
Mica: Let me make one point. Not all banks hate credit unions, and we don't see this in all states. In most cases this is being led by a group of zealots who believe very strongly we shouldn't be around, and they're putting millions of dollars into their campaigns.
Helferty: There's absolutely no doubt the banks in our country are talking among themselves. Let there be no doubt that the sole purpose of the bank is to make a profit. We use money for the benefit of people and banks use people for their money, and we've got to get that across to our members and our legislators.
Audience question: The formation of CDCUs would seem to indicate CUs in the U.S. have taken their eye off the ball and have become too middle class and not served this market niche anymore?
Mica: Clearly the larger a credit union gets the more effort they have to put into reaching the underserved. But I would say that credit unions large and small do a better job reaching out to the underserved. We're trying to help them keep their eyes on the ball and developing programs and templates for them to use. I think we're 70% to 80% there and we can do a better job. If you don't serve all segments of society, there is no bank in the world that only lends to people who cannot afford it. If you do lend only to those who can't afford it, the regulators will shut you down.
Bierecki: Banks would love to see us as a poor man's bank. We believe that credit unions serve communities, and that means all the diversity in the community. So we cannot agree that credit unions are just for poor people.