Credit union loophole should be first casualty in tax reform
As our nation swears in its 45th president, many of the big public policy issues relate to the nation’s finances. How does the U.S. maintain its strength when it is saddled with a $20 trillion national debt? We can start by putting credit unions’ tax exemption on the chopping block.
Our nation’s debt is a bipartisan issue that has been taken to new heights under President Obama’s watch. During the tenure of President George W. Bush, our national debt rose from $5 trillion to $10 trillion. That was unacceptable. Then-Senator Obama, while campaigning in South Dakota in 2008, described the increase in the debt under President Bush’s watch as “irresponsible and unpatriotic.” But he did nothing to halt its rise during his own tenure in the White House.
We need funding for defense and the war on terror; we have certain fixed costs and other needs that we must fund. We have transportation needs to restore and rebuild our roads and bridges. We need to take care of our children and seniors. We need to keep the promise to our seniors of a vital and strong social security system and of a sound Medicare system, among other important line items.
Right now, our country is borrowing to pay its bills. Three-fourths of our budget is allocated for entitlements. We borrow 43 cents of every federal dollar we spend. This cannot continue. We must right our financial house if our country will remain a superpower.
Our current fiscal policy is also challenged by the tax rates and loopholes in our federal tax code. Our corporate tax rate is not competitive with the other industrialized and developed G-20 countries. That needs to change in order to keep America strong and competitive. Outdated and unnecessary loopholes also need to be closed to raise revenue.
As President-elect Trump and the new Congress proceed on tax reform, there is one loophole in particular that needs to be closed, shut and buried: the one for credit unions. It is outdated. Credit unions that act like banks should be taxed like banks. Currently, even multi-billion-dollar credit unions pay zero corporate income taxes to support the needs of our nation. The tax exemption should be left for the “Mom and Pop” credit unions that remain true to the original charters. However, giants like Golden One in California, which paid $140 million for the naming rights to the NBA’s Sacramento Kings’ new billion-dollar arena, should pay state and federal corporate income taxes.
As a military veteran, I appreciate Navy Federal Credit Union’s mission, but a $60 billon financial institution should not be tax-exempt. Our banks also service the men and women in uniform, and pay taxes that meet the needs of our nation (and military) while doing so. Another example is a credit union like Suncoast in Florida, which operates in 24 counties and is a $7 billion-plus financial institution. It is high time it started supporting our troops, the war on terror, as well as the needs of our children and seniors by paying its fair share of state and federal corporate income taxes — as does the rest of corporate America.
There is precedent for the closure of this loophole. In the 1950s, Congress closed the tax loophole of the tax-exempt savings and loans when it was determined that they were bank-like. In today’s marketplace, large credit unions are building multimillion-dollar branches and offering the same product lines as FDIC-insured banks. Many of these multibillion-dollar credit unions like Suncoast are larger than all the community banks that operate in their footprints combined.
Our country needs tax reform for many reasons. But why should a family of four, struggling to make it in this economy, pay more in state and federal taxes than a billion-dollar financial institution masquerading as a tax-exempt credit union? Why?
Alejandro M. Sanchez is president and CEO of the Florida Bankers Association.