WASHINGTON–The tax-status of America’s largest credit unions is again under attack, this time by the National Taxpayers Union and nine other groups.
In a letter to Sen. Orrin Hatch (R-UT), the NTU, which advocates in favor of tax reform, lower government spending and reduced federal debt, said the “organizations are concerned that some large credit unions have strayed from their intended purpose, as defined by the Federal Credit Union Act of 1934.”
CUNA has responded by claiming several “falsehoods” are contained in the letter, including how much money elimination of the tax exemption would generate for the U.S. Treasury.
The NTU letter comes at the same time NCUA Chairman J. Mark McWatters has responded to a January, 2018 letter from Hatch that challenged the tax exemption, and a separate letter from Hatch to the IRS requesting it require large credit unions to file 990 forms to essentially prove they deserve to have a tax exemption.
In none of the letters and proposals is a definition of “large” provided.
“We urge your committee to thoughtfully examine this exemption to ensure adherence to the original intent of the statute,” states the letter from the NTU and the other entities. “This discussion must not be the pretext for selectively raising federal revenues or tax burdens; rather, it should be viewed as a way to foster broader-based, long-term tax relief and cultivate greater economic efficiency.
“The separate treatment of credit unions in the Tax Code was born in the midst of the Great Depression with the goal of helping unbanked and lower-income individuals obtain access to financial services,” the letter continues. “This tax-exempt status was granted with requirements to limit their depositors to groups holding a common bond, such as an occupation, community, or association, and to avoid high-risk, high-reward investments. While the overwhelming majority of credit unions still conform to these founding principles by providing specific financial services to specific groups, some of the larger institutions more closely operate as regular banks than credit unions. These particular entities have eased their membership requirements and accepted customers who do not meet their original qualifications, which they set themselves. In doing so, they may have undermined the “common bond” requirement.”
The letter further claims the tax exemption “gives these select few credit unions a distinct edge over taxpaying banks and creates an uneven playing field, particularly over smaller community banks, which compete for similar customers.”
According to the NTU letter, which cites the Office of Management and Budget, the credit union tax exemption’s revenue impact will be $35 billion over the next decade. Seventy-five percent of that “tax advantage,” the letter claims, flows to the top 5% of credit unions.
Joining the National Taxpayers Union as signers of the letter were the Taxpayers Protection Alliance, Consumer Action for a Strong Economy (CASE),
Family Business Coalition, Less Government, Business Coalition for Fair Competition, Center for Freedom and Prosperity, Hispanic Leadership Fund, Let Freedom Ring, and Frontiers of Freedom.
CUNA's Response
In a letter to Hatch in response to the NTU letter, which can be found in CUToday.info's The Gov, CUNA President/CEO Jim Nussle said any changes to tax status would harm consumers and cause a direct tax increase for 110 million Americans.
“Changing the credit union tax status would likely result in many credit unions converting to bank charters – essentially eliminating cooperative, member-owned institutions from the marketplace and eliminating nearly $11 billion in direct financial benefits that currently accrue to credit union members,” Nussle wrote. “Fewer credit unions also would result in fewer societal benefits including a reduction in billions of indirect financial benefits that accrue to bank customers and innumerable benefits to the economy arising from the fact that (unlike banks) credit unions serve as a counter-cyclical force during economic downturns.”
The letter states again that credit unions are 100% member-owned with fields of membership that distinguishes them from every other class of financial institution. Nussle further noted that tge credit union structure and mission has not changed since Congress granted the tax exempt status.
“Taxing credit unions would do very little in terms of addressing U.S. government budget issues. If credit unions were taxed in 2017, the receipts (according to Office of Management and Budget estimates at that time) would have accounted for only 0.07% of federal spending, which would have funded federal government operations for only seven hours,” said Nussle, who was previously the director of the OMB.