Over the years, bankers have struggled to interest more than a handful of lawmakers in their objections to the credit union tax exemption. Now, though, they may have been handed a new weapon by the Trump administration.
As part of the budget document released Tuesday, the Treasury Department provided an estimate of how much revenue the federal government is foregoing as a result of the credit union income tax exemption -- $35.3 billion over 10 years. Just last year, the 10-year total was pegged at just $26.7 billion, according to John J. McKechnie, a prominent credit union lobbyist.
"Typically, these kinds of budget estimates remain consistent year-to-year, and the size of this increase is noteworthy,” McKechnie said. “ Credit unions shouldn't overreact, but we shouldn't under-react either. Time will tell if this is an indicator of where the Administration is on credit union tax issues."
Bankers, not surprisingly, were quick to cite the data as a sign the exemption issue is ripe for re-examination.
"It's very interesting," Christopher Cole, senior regulatory counsel at the Independent Community Bankers of America, said Wednesday in an interview. "It's up about a third in just a year. It shows just how big the exemption is getting...I think it will cause some people to ask if we can continue to afford this."
Treasury released its numbers just a week after the National Association of Federally Insured Credit Unions sent a letter to the leadership of the House Ways and Means Committee arguing the tax exemption actually results in a net positive for the government.
According to the letter, drafted by Executive Vice President of Government Affairs and General Counsel Carrie Hunt and sent May 18, the exemption will generate $159 billion in economic activity over the next decade. Cancelling it would result in $38 billion in lost tax revenue.
"That's just the opposite of what the administration is striving for," Hunt said Wednesday in a statement.
Ryan Donovan, chief advocacy officer at the Credit Union National Association, echoed that point Wednesday, noting that the increased estimate is most likely the result of the industry's continued strong financial performance.
"Estimates are not gospel, they are merely estimates and can be debated by good men and women for weeks on end," added Dennis Dollar, former chairman of the National Credit Union Administration and the principal partner at consulting firm Dollar and Associates.
"The political question is would congressmen and senators be willing to tee off millions of credit union members for such a small return of annual revenue against such a gargantuan deficit and debt," Dollar continued. "As a former elected official who had to face the voters every few years, I believe Democrats and Republicans will both see this as political loser. Personally, I don't think the Trump administration - once they look at the political cost-benefit - will do more than study it a bit and then leave it alone."
Interestingly, release of the estimate comes just weeks after a delegation of community bankers engaged in a high-profile meeting with President Trump.
While credit union advocates insisted the new numbers won't lead to any new traction for banker objections to the tax exemption, they were quick to add they would remain vigilant in case the situation changes.
"You know the bankers will keep pushing this absurd argument that gives hypocrisy a bad name because of the large number of Subchapter S banks that also pay no corporate income tax," Dollar said.
"Every president's budget lists out 'tax expenditures,' and there's no proposal in this budget to tax credit unions," Hunt said. "Even so, NAFCU is always vigilant and stays in touch with the Hill, Treasury and OMB so they understand the value of credit unions' tax exemption."
