More than a dozen pro-market groups — including Grover Norquist’s Americans for Tax Reform, FreedomWorks and the Center for American Prosperity — are calling on Congress to put a halt on any further discussion of scrapping credit unions’ tax exempt status.

The letter, sent Wednesday from the Competitive Enterprise Institute to Senate Finance Committee Chairman Orrin Hatch, urges him to rethink recent comments questioning the value of the credit union tax exemption. On Jan. 31, Hatch, R-Utah, dispatched a letter to National Credit Union Administration Chairman Mark McWatters citing concerns the credit union industry “is evolving in ways that take many credit unions further from their original tax-exempt purpose.”

Sen. Orrin Hatch, a Republican from Utah and chairman of the Senate Finance Committee.
Sen. Orrin Hatch, a Republican from Utah and chairman of the Senate Finance Committee. Bloomberg News


In their response, the groups in the coalition stated they were seeking to underscore “the importance of keeping that tax relief in place for everyone and, in particular, firms that fulfill the saving and borrowing needs of consumers.”

They pointed out also that distributions some credit union members receive from their institutions are fully taxed, as are benefits that accrue from favorable interest rates.

In his March 28 response to Hatch’s original letter, McWatters stated that eliminating credit unions’ federal income tax exemption without significant additional regulatory relief, including removal of field-of-membership and business-lending restrictions, would create a safety-and-soundness issue for the industry’s share insurance fund.

The pro-market coalition claimed eliminating the tax exemption would amount to “punitive double-taxation” on credit unions.

Banks, especially community banks, have complained loudly about the tax exemption, arguing it gives credit unions an unfair advantage.

Hatch has announced plans to retire at the end of 2018, after completion of his seventh term in the Senate.

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