Banks need to do more than just complain about credit unions
President Trump’s latest analytical perspectives report estimates that the tax expenditure arising from a long-standing corporate tax exemption for credit unions will exceed $21.8 billion for fiscal years 2020 through 2029, according to the Office of Management and Budget.
This whopping estimate warrants a deeper dive.
What was Trump and members of his administration thinking when they included this analysis in the proposed budget? And is this an issue?
With the national debt growing by the minute, recently at $23 trillion, and with a $1 trillion budgetary shortfall this fiscal year ending Sept. 30, 2021, folks in Washington need “pay-fors” in the budget.
How does our federal government make up this shortfall? The Democrats want to increase taxes and protect social spending. The Republicans want to protect and increase defense spending, and not raise taxes. Who wins this battle and what is the compromise?
The answer lies with the IRS code and the closing of outdated tax loopholes that no longer make sense in 2020. Some of these tax loopholes may have been relevant or necessary at one point in time, but some have outlived their purpose.
The credit union tax loophole is one of those. Congress did not intend to create a credit union like the $13 billion-asset Golden 1 Credit Union that paid $120 million for the naming rights to the Sacramento Kings’ new NBA arena.
Congress must close this loophole once and for all. The time has passed for any more association or industry task force meetings, or the hiring of more experts.
The evidence and information is clear. But, like all legislative proposals, sweat equity is needed to prevail.
The Florida Bankers Association, with the help of several other states, have attempted to push for legislation to close that abusive loophole enjoyed by credit unions. But more can be done through the industry as a whole.
Specifically, the FBA and several states pushed legislation that would close the loophole for mega credit unions (exceeding $1 billion in assets), exempt single- employer credit unions and impose the Community Reinvestment Act (CRA) on all credit unions.
But sitting poolside and continuing to complain about the weather every day will not change anything. That is precisely what the banking industry does in Washington by meeting with members of Congress without a bill for which to advocate.
In 1994, there were 14 credit unions in the U.S. with $1 billion or more in assets. Today, there are 326 credit unions whose assets far exceed $1 billion.
Navy Federal Credit Union, which reported $1.6 billion in net income for 2019, continues to grow to an institution that is now exceeding the $110 billion asset mark. Congress never intended to create such a behemoth when the credit union act was passed in 1936.
If the banking industry continues to wait in advocating for a bill while that 326 credit union figure grows to say, 700 by 2030, it will have a detrimental impact on community and regional bank. These banks have been the bedrock of providing capital to fund and start up small businesses.
Small businesses are the heart and soul of the nation’s economy. All banks must be able to compete on a level-playing field. Currently, banks are competing against credit unions that are exempt from corporate taxes and the CRA, which requires banks to reinvest in the communities they serve.
Corporate welfare must end for the mega credit unions, as the CEOs and other senior executives of those institutions are lavishly paying themselves exorbitant salaries and building financial empires that are not supporting the needs of the country.
By being tax-exempt, these mega credit unions hide behind the “non-for-profit” corporate veil while not paying for the real needs of America: Like the nation’s defense system, fueling education for the youth, supporting veterans and transportation.
The industry cannot expect a bill that closes these credit union loopholes to be approved by lawmakers overnight. But the process must start at some point.
If the industry continues to wait for the “right time” the tax-exempt banks operating as credit unions will only continue to grow, both in market share and political influence. The right time is now.