For years, credit unions have endured attacks by the banking industry aimed at the "unfair" tax benefits credit unions receive from the government. Banks and thrifts have tried to put credit unions under a spotlight, hoping some reason will emerge for why the credit union community should lose its tax-exempt status.
Now, for a change, that spotlight will be directed back at them. In the next few months, the General Accountability Office will conduct a study on the banking industry at the request of Rep. Bernie Sanders, I-Vt.
Sanders requested the study at NAFCU's urging in order to expose the truth about the banking industry's own tax benefits. I believe the results of this study will show that the bankers, despite their complaints about credit unions, enjoy significant advantages in the form of government aid and tax breaks.
What The GAO Will Examine
The GAO study will examine, among other things, the tax benefits and tax avoidance measures that banks and thrifts have enjoyed since the savings and loan crisis of the 1980s. Quite simply, in the 1980s, they made some bad investments and asked the federal government to bail them out.
Credit unions are not the ones that went to the federal government looking for a handout of taxpayer dollars. In fact, as we all know, no federal tax dollars have ever been used to assist "problem" credit unions.
Sanders noted at last year's NAFCU Congressional Caucus that taxpayers paid $123 billion to bail out the banking industry. Large banking institutions such as Chase Manhattan, Bank of America and Citibank received $19 billion for bad investments in 1998, Sanders said at the Caucus.
As a part of the study request, Sanders asked the GAO to include the actual amount of taxpayer money given to the banking and thrift industry due to the bailout.
Although the banking industry is extremely profitable, it continues to perpetrate myths about credit unions. One such falsehood touted by banks is that credit unions are exempt from all taxes; however, credit unions pay many taxes, including payroll and property taxes.
It is true that, due to their non-profit nature, credit unions are exempt from paying certain taxes like corporate income taxes, but there are a number of banks that are also tax-exempt.
Subchapter S banks are exempt from paying corporate income taxes, and the largest Sub S bank has more than $10 billion in assets. More and more banks are dodging taxation by converting to Sub S corporations. In fact, there are now nearly 2,400 such banks, representing more than 27% of all banking institutions.
While NAFCU estimates that the revenue loss due to Sub S banks could be more than $1 billion annually, we will learn the true cost to the U.S. taxpayer when the GAO completes its study. The GAO has been asked to examine, among other things, the number of Subchapter S banks currently operating and how their tax-exempt status has enriched their stockholders and executives.
In contrast, the credit union corporate tax exemption does not go directly into the pockets of credit union board members or management staff. Actually, funds from the credit union tax exemption go to the member-owners in the form of lower loan rates and higher dividends.
Bottom line, credit unions work for people, unlike banks, which work for profit and enriching their stockholders and passing bonuses to their executives. Little details like these seem to evade the bankers when they are busy pointing fingers. The GAO study will help bring these to the surface.
Why Do Banks Care?
So why do banks care if credit unions are exempt from paying certain taxes? Well, banks contend that the credit union tax exemption creates an uneven playing field.
Let us take a look at this "uneven" field for a moment and the presumed disparity created by the credit union tax exemption. Federally insured credit unions have about $697 billion in assets compared with the banking and thrift industry, which has $11.5 trillion in total assets and continues to enjoy healthy profits.
Bringing Banks And Thrifts To Their Knees
I do not see from the available evidence where the credit union tax exemption is bringing the banks and thrifts to their knees. With the sizeable gap between the banks' trillion-dollar assets and the credit unions' billion-dollar assets, one may wonder why the banks are complaining.
Sanders suggested last year at Caucus that greed is a great motivator for the banking industry. "Instead of fighting with credit unions, they (banks) should ease up on their greed," he said.
I am confident that the results of the study will show that bankers have been pointing their fingers in the wrong direction when they accuse credit unions of having an unfair market advantage. Credit unions deserve their "benefits" because they remain non-profit, democratically operated, member-owned financial institutions intent on serving those in need of their services.
Sanders even noted at last year's Caucus how credit unions continue their mission of providing financial services and products to the underserved while banks are "increasingly leaving ordinary Americans behind."
I have already mentioned that the study will look at the S&L crisis of the 1980s and Subchapter S banks. The GAO study will also delve into more areas as well, such as the amount of money the U.S. Export Import Bank has provided the banking and thrift industry; assistance to banks by the Overseas Private Investment Corporation; assistance by the International Monetary Fund for risky loans; and other subsidies and benefits the federal government has provided the banking and thrift industry.
It seems to me the banking and thrift industry has received a great deal of assistance that will make any benefits received by credit unions pale in comparison. I expect that the study will confirm this when it is released.
We at NAFCU will be waiting with eager anticipation for the results of the GAO study. We thank Rep. Sanders for requesting this study, which will bring the facts about the banking and thrift industry to light. The banks have been focusing the spotlight on us; now it is time to focus it on them.
Bradford Thaler is director of legislative affairs at NAFCU. He can be reached at 703-522-4770.
