If it's one thing this year's stateside tax battles should have taught credit union loyalists it is that they need to strengthen their arguments to support their case for their tax exemptions.
Notice I referred to tax exemptions, in the plural. That's because it's not just the exemption from federal income taxes that burn the bankers, but the state taxes over which state legislators are concerned.
Now, I'm not saying that the tax exemptions should be scratched, because I still love credit unions and think the benefits accruing from the generous exemptions allows them to do many wonderful things, not the least of which is keep my car loan rate down.
When I worked for CUNA I was paid to articulate and disseminate these arguments. So I am well acquainted with their reasoning. But the old arguments are under heavy attack and need to be revisited, because they're not resonating with everyone.
First, CUs are not-for-profit institutions.
What does that mean? Credit unions are not charities and shouldn't be confused with such. And certain taxable institutions, like cooperatives, or mutually owned savings and loans, pay back all of their net income to owners.
Next, the credit unions argue they are democratically controlled. Of course, critics say, many institutions are democratically controlled, including publicly owned corporations, but that does not qualify them for an exemption from federal income taxes (though CUs would note there's a difference between one dollar-vote and one person-one vote).
Finally, the fact that credit unions don't issue stock is often cited as a reason for the tax exemption. Under that reasoning all privately owned companies should also qualify for the exemption.
It's nice that credit unions possess these characteristics, some more than others, but lawmakers and members of the public from Sacramento to Salt Lake City to Des Moines clearly misunderstand what it is that entitles credit unions to their tax exemptions.
If the presence of all three conditions deserves an exemption for federal income taxes, should not mutually owned s&ls still be tax- exempt? Those arguments did not work for the s&ls, which lost their tax exemption in 1952, due in no small part to the onslaught of lobbying by the banks. Sound familiar?
Perhaps its time to pose new justifications for the credit union tax exemption. How about the need to encourage Americans to save more? How about the desire among many credit unions to reach out and serve the underserved or less-served? The pooling of resources by immigrants, laborers or enlisted military personnel? How about their role in community enrichment? These are all good reasons and there are other reasons that are valid and should be discussed vigorously.
Credit union loyalists need to come up with new arguments to sustain the tax exemption. I suggest a national debate, perhaps a conference, where delegates may discuss the issue and the justification for the continued tax exemption and their own abilities to articulate that argument.
Otherwise, their arguments are going to be torn apart in the coming years. And kiss that tax exemption good bye!
