Talk about letting your readers down.
The Congressional Research Service, an arm of Congress, released a study Tuesday titled, provocatively enough, "Should Credit Unions Be Taxed?" But the 13-page document never answered the question, concluding only that growing competition between banks and credit unions will probably further the debate.
Still, banking and credit union trade groups promptly put their own spin on the report. Only a member of Congress can request a report from the research service, and bankers say the fact that a lawmaker requested it at all shows that their arguments for taxing large credit unions are having an effect.
Credit union officials, for their part, said the report's conclusion that credit unions have become more bank-like in recent years ignores a critical point: that banks can raise capital from investors and credit unions cannot. Banks have little reason to complain about credit union competition given their robust profits, the officials added.
The study is the fourth in the past 15 months that a think tank or research group has released that advocates or at least suggests that credit unions be taxed. The increasing frequency of such studies is a "signal that the debate is heating up," said Robert Schmermund, a spokesman at America's Community Bankers. "Credit unions' desire would be to end this discussion once and for all, but this report isn't going to do that."
Bank groups also liked the report's finding that the credit unions have come to resemble banks more.
"My analogy would be a situation where Starbucks coffee is taxed and Caribou coffee isn't," said Paul Merski, the Independent Community Bankers of America's chief economist. "If they're both providing the same service, why is only one being taxed?"
But Fred Becker, the president and chief executive officer of the National Association of Federal Credit Unions, defended credit unions' tax exemption by arguing that banks can raise capital by selling stock or debt to investors. Credit unions can raise capital only through their retained earnings.
"If you tax those earnings," credit unions' ability to raise capital "will be constrained significantly," Mr. Becker said. That the study overlooked the capital issue "raises questions about its accuracy," he said.
Daniel A. Mica, the Credit Union National Association's CEO, said a banking-industry earnings report published Thursday undercuts banks' contention that they are harmed by credit union competition. In its Quarterly Banking Profile, the Federal Deposit Insurance Corp. said that banks and thrifts had their second-best earnings quarter ever in the three months that ended June 30, tallying $33.1 billion.
Randy Chambers, the chief financial officer at the $185 million-asset Self-Help Credit Union in Durham, N.C., said it does not bother him that Congress requested a report on the taxation issue.
"I think the question that ought to be asked is, What benefits are credit unions providing to their memberships and to the public?" he said. "The answer is that the vast majority are serving the needs of middle- and working-class people all over this country."
The other three groups that have examined credit union taxation in recent months, the Tax Foundation, the Progressive Policy Institute, and the Thomas Jefferson Institute on Public Policy, all concluded that the industry's tax exemption should be eliminated entirely or limited to small credit unions.
The Tax Foundation's study, which was published in February, said that taxing credit unions would raise $31.3 billion of revenue over 10 years.
Mr. Becker did not dispute that claim, but he said taxing credit unions would result in the elimination of the charter. No credit union would accept the membership and lending restrictions that the charter imposes if it meant paying the same taxes banks pay, he said.
Robert Hoel, the executive director of the Filene Research Institute in Madison, Wis., said taxing credit unions might not hit the industry quite as hard as Mr. Becker believes, but he said it would force credit unions to behave more like banks. That, he said, would be bad for consumers.
Competition between different kinds of financial service providers "has been very good for consumers," Mr. Hoel said. "It produces creative results by all the players in the game."
