Whether tax reform will make any headway this year remains uncertain, but one thing is clear: eliminating the credit union exemption would be bad for consumers, the financial industry and the economy. NAFCU's 2014 study of the value of the exemption shows that the loss of the credit union exemption would deprive Americans of more than $17 billion in economic benefits annually.
"Economic Benefits of the Credit Union Tax Exemption to Consumers, Businesses and the U.S. Economy," was co-authored by Robert Feinberg, professor of economics at American University, and Douglas Meade, director of research at Interindustry Economic Research Fund Inc. As this study demonstrates, the current CU business model benefits both bank customers and the 97 million consumers who are CU members.
CUs Outperformed Banks
During the period from 2005 to 2013, credit unions outperformed banks with lower interest rates on vehicle, real estate and credit card loans and higher returns on certificates of deposit, IRAs and checking and savings accounts. The study shows that:
- A 50% reduction in the credit union market share would cost bank customers an estimated $7.6 billion to $16.2 billion per year due to higher loan rates and lower deposit rates.
- Credit union members benefited from credit unions to the tune of $51.5 billion over the nine-year span of the study, due to credit unions' low interest rates.
- Bank customers realized an estimated $101.4 billion in benefits over the same period as competition from credit unions forced banks to keep their rates low.
- The total benefit to U.S. consumers from CUs' presence in financial markets was $153 billion from 2005 to 2013 — or $17 billion per year.
- These benefits would likely end if credit unions ever lost their tax-exempt status, as a number of credit unions would go out of business.
- the U.S. gross domestic product would be reduced by $148 billion;
- 1.5 million jobs would be lost over the next decade; and
- the federal government would receive $15 billion less in income tax revenue over the next 10 years due to reduced personal income.
The study also found that with fewer credit unions, bank customers and CU members would spend more on interest payments and less on goods and services, leading to lower economic growth. More specifically:
Business Model Continues To Thrive
Even through hard economic times — including the recent Great Recession, from which we are still recovering — we've seen the credit union business model thrive.
Credit unions did not participate in the misleading and harmful practices that caused the recession. They continued to serve their members and actually increased their lending to small businesses at the same time banks were cutting back on such lending.
Even so, the industry has seen a loss of approximately 825 credit unions since the passage of the Dodd-Frank Act in 2010, and more will be lost as these financial institutions are forced to comply with unnecessary and burdensome regulations, for an economic downturn they did not cause.
The data presented in our tax study demonstrates the vital role CUs play within the U.S. economy. It shows that the industry's tax exemption plays an important, positive role in helping Americans save and prosper.
Most importantly, credit unions bring competitive pressure to the financial marketplace, and that's good for all consumers regardless of where they bank. That is a message lawmakers need to hear.
Carrie Hunt is NAFCU's senior vice president of government affairs and general counsel.
