If we didn't know better we would have thought the banking lobby was working in concert with CUNA President Dan Mica last week when they introduced their own "independent" study purporting to refute the necessity of the credit union tax exemption, just as thousands of credit union faithful were gathering here for CUNA's annual Government Affairs Conference.
That's because there was much whispering in the hallways over CUNA's continued focus on the threats, perceived or not, to the tax exemption. On the one hand, CUNA executives were telling CUNA board members behind closed doors that there is no immediate threat in Congress to the tax exemption. At the same time, CUNA executives are rousing up credit union representatives to fight off the bankers' attempts to get Congress to repeal the exemption.
'Tax Foundation' Study Released
As if on queue, an unknown research group called the Tax Foundation, issued a study on the day the GAC officially opened purporting to find "no good policy argument" for the continuation of the tax exemption. In the headline of a press release issued announcing the study, the group put the cost of the tax exemption at $30 billion!
Of course, you have to read the fine print to find out that the actual cost of the tax exemption in lost revenues for the U.S. Treasury is almost the same as it has been for the last 10 years, $1.5 billion a year. So where does this group get their $30 billion figure? Why, that's the cost over ten years!
And who commissioned the study? Why, the Independent Community Bankers of America, the same group that has been pushing repeal of the tax exemption for two decades.
The study had some other dubious conclusions, including that only six basis points of the credit unions' 50 basis point "subsidy" accrues to credit union borrowers through lower interest rates; that tax-exempt credit unions continue to grow faster than banks, and there is no evidence that credit unions have turned their tax subsidy into service for low-income people.
The results of the study are so divorced from reality you wonder if this group is actually just a front for the bankers. Or for Dan Mica, allowing him to illustrate an actual threat to the tax exemption.
Study Serves Purpose
CUNA, of course, was quick to issue its own press release refuting the dubious claims of this "independent" study. But the study served a purpose for CUNA's GAC.
Still, there is no imminent threat to the tax exemption. Despite the widening federal budget deficits, no one in Congress has raised a credit union tax as a way of raising new revenues. There are numerous reasons for this. One is the Republicans who control all facets of Congress are so averse to raising taxes they are willing to continue expanding the federal deficit, rather than increase taxes. Nor do even the Democrats anticipate the tax exemption wll be revoked anytime soon. Massachusetts' Barney Frank said of credit unions' fears, "Don't worry about it; it ain't gonna happen."
Another is the broad constituency the credit union tax exemption enjoys. And still another is the negligible revenues a credit union tax would raise, having little impact on the deficit.
One of the messages heard over and over again among the credit union faithful during the GAC was a desire for CUNA and the credit union lobby to refocus its energies on proactive issues, such as the regulatory relief bill known as CURIA.
Lawmakers are expected to introduce the latest version of the bill, which has about 15 major regulatory improvement proposals in it, any day with a couple of new wrinkles. One would institute a risk-based capital system being proposed by NCUA. Another would address the issue of accounting for mergers, allowing credit unions to continue "pooling" the capital of the two institutions after completion of the merger.
What CURIA Would Also Do
The bill would also include major provisions that were included in last year's bill that died at the end of Congress without ever being voted on. Those provisions would increase the ceiling on member business loans from the current 12.25% of assets; allow federally chartered credit unions to offer check cashing and wire transfers to non-members within their fields of membership; and also make it tougher for credit unions to convert to mutual savings banks.
Sponsors of the bill, which include members of both parties, are working to get a broad representation across the states in order to improve its chances for passage.
No Shortage of Obstacles
But the bill faces major obstacles in Congress as it singles out credit unions for regulatory relief, in contrast to an omnibus regulatory relief bill for all financial service providers soon to be reintroduced. That means the credit union-only bill will remain a major target for the powerful banking lobby.
Sooner or later, the credit union lobby is going to have to sit down with the bankers-as they have in Michigan, Connecticut and several other states where successful credit union reforms were legislated in recent years-to come to some kind of accommodation. So far, the credit union groups have shown no inclination to do so.
The Credit Union Journal's Ed Roberts can be reached at eroberts
