Democrats Vow to Defend Credit Union Tax Exemption

WASHINGTON — Lawmakers supported the credit union tax exemption at an industry conference Tuesday, downplaying efforts to take another look at the issue this year as part of comprehensive tax reform.

The financial services industry has been divided for decades over the issue, and banks have repeatedly pushed Congress to require that credit unions pay corporate income taxes, arguing that the exemption is an unfair competitive advantage. Credit unions, which are currently exempt because they are non-profits, have said their tax status is vital to their mission.

The GOP-led Senate Finance Committee is gearing up for another look at the entire tax code, and it's so far unclear whether credit unions will get swept up in that debate. But several Democrats speaking at a credit union industry conference on Tuesday said they'd oppose any changes to the exemption.

"I want to be clear that any proposals to change the tax status of credit unions will not win the support of me and a whole lot of others," said Sen. Sherrod Brown, D-Ohio, the top Democrat on the Banking Committee and a senior member of the Finance Committee.

Brown added that the issue boils down to whether those pushing to reduce the corporate tax rate might look to do so by expanding the tax base, bringing in groups like credit unions as part of that effort.

"That's the threat to credit unions, that somebody in the Senate will try, in order to get the tax rate down … they're going to want to want to tax credit unions as well and they're going to want to change the status of credit unions," Brown told attendees at the Credit Union National Association's government affairs conference.

Other lawmakers, including Sens. Jeff Merkley, D-Ore., and Gary Peters, D-Mich., along with Rep. Brad Sherman, D-Calif., also spoke out in favor of the credit union exemption during remarks Tuesday at the CUNA event.

Sen. Chuck Grassley, R-Iowa, a senior member of the finance panel, noted Monday at the CUNA conference that the issue hasn't been central to discussions around tax reform so far, though he said he understood "why this issue is so important — Congress is aiming to tackle tax reform, and so, inevitably, everything is on the table."

He added: "The only time that this issue is brought up is either when I'm talking to credit unions or to banks. Outside of that, the issue has rarely, if ever, come up among members of the Finance Committee or as part of the tax reform framework that has been put together for working on tax reform this Congress."

Lawmakers also spoke about ongoing work to improve cybersecurity protections in the wake of numerous breaches at banks, retailers and others over the past several years. Congress failed to pass an information-sharing bill last year that would protect businesses when sharing information about threats and hasn't addressed calls for a national consumer notification standard when breaches occur.

"The government has a place here, but it should be more of a facilitator. We need the ability to exchange information when we identify threats and we need to be able to do that without risk of triggering some kind of liability for those organizations," Rep. Randy Neugebauer, R-Texas, a senior member of the Financial Services Committee, said on Monday.

Peters added that financial institutions shouldn't be on the hook when other businesses are attacked and financial information is stolen. Banks and credit unions alike have argued that Target, Home Depot and other retailers should foot the bill when their systems are compromised.

"When [retailers] have a breach and those cards get compromised, customers don't blame them, they blame the financial institution, even though you had nothing to do with it whatsoever," Peters said on Tuesday. "So that is wrong, and not only do you get blamed, but you get left holding the bill and the cost associated with that."

Meanwhile, lawmakers on both sides of the aisle continued to discuss the need for tweaks to the Dodd-Frank Act to reduce regulatory burdens on smaller financial institutions.

"Congress needs to consider ways to ease some of those regulations on the smallest credit unions and community banks," Brown said, while noting that he would continue to oppose more sweeping changes, like calls to overhaul the structure of the Consumer Financial Protection Bureau.

Legislation could also extend beyond the financial reform law. Several lawmakers pointed, for example, to a popular bipartisan bill permitting financial institutions to send privacy notices to customers only when the disclosures change, along with a separate measure to raise the cap on credit union member business lending.

Whether Democrats and Republicans can find common ground to work on regulatory relief remains to be seen, though interest from both parties is at least a first step.

"A number of what we call technical correction bills that were introduced in the last Congress and we were actually able to pass out of our committee and actually some of those passed out on the House floor," Neugebauer added. "We're going to be bringing those back up, we're hoping now with a little bit different configuration in the Senate."

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