Banks’ obsession with credit unions’ tax status helps no one
Alejandro Sanchez’s recent op-ed — “Credit union loophole should be first casualty in tax reform” — played fast and loose with the facts.
Like other voices in the banking industry, Sanchez cast aspersions on the nation’s cooperative, member-owned credit unions, while overlooking the value they contribute to our economy.
The banking industry’s focus on credit unions’ tax status is ironic. These critics always fail to point out that roughly one-third of banks — those with the federal government’s “Subchapter S” status — pay no federal corporate income tax.
Sanchez missed other key points. Let’s set the record straight on a number of things:
Credit unions and banks are not the same
Contrary to what bankers claim, there are significant regulatory and statutory differences between credit unions and other types of financial institutions. Credit unions face restrictions on their activities that don’t apply to banks. For examples, credit unions serve defined fields of membership and cannot issue capital stock. Credit unions are not-for-profit and return their earnings to members in the form of lower fees and competitive rates.
All consumers, even bank customers, benefit from credit unions
Without credit unions, which serve to provide checks and balances in the marketplace, for-profit banks would likely increase rates and fees even more on consumers to enrich their shareholders at the public’s expense.
In fact, a study commissioned by NAFCU shows the benefit to U.S. consumers from the credit union federal income tax exemption is $16 billion per year, or $159 billion over the 10-year period that the study examined. Furthermore, a 50% reduction in market share for credit unions would cost bank customers an estimated $6.9 billion to $15.7 billion per year in higher loan rates and lower deposit rates. The total losses to bank customers as a result of less favorable rates would total $102.2 billion over 10 years.
The study also indicated that, as a result of lost income to credit union members, removing the credit union tax exemption would actually cost the federal government $38 billion in lost income tax revenue over the next 10 years.
Credit unions help the economy grow by supporting their members in other ways – especially small-business owners. A 2011 study commissioned by the Small Business Administration’s Office of Advocacy found that during the 2007-10 financial crisis, while banks’ small-business lending decreased, credit union business lending increased as a percentage of assets.
Today, credit unions continue to provide much-needed capital to small businesses. As of September 2016, credit unions’ outstanding small-business loans rose 14%, to $60 billion, from a year earlier.
Credit unions do pay taxes
Contrary to the rhetoric voiced by banking groups, credit unions pay payroll taxes, and many state and local taxes.
Additionally, their member-owners pay personal income taxes on dividends from their credit unions. If credit unions really have it as good as Sanchez claims there would be a thunderous parade of banks converting to credit unions.
Instead of criticizing credit unions, banks and their advocates should be working to help their institutions improve service for their customers, and improve value for their shareholders. Attacking credit unions’ business model, while seeking to undermine credit unions’ value, helps no one.