ARLINGTON, Va.–NAFCU’s chief economist has authored a response to an opinion piece that appeared in U.S. News & World Report that called for doing away with the credit union tax exemption.
As CUToday.info reported here, Diana Furchgott-Roth, a former chief economist of the U.S. Department of Labor who is now an adjunct professor at George Washington University, authored an op-ed in which she opined “…credit unions are exempt from income taxes, even though they function in a similar manner to banks, which are taxed. This makes no sense.”
In the piece Furchgott-Roth argued that CUs have outlived the reasons the tax exemption was included in the Federal Credit Union Act, that not all credit unions are returning funds to members, and that the big sponsorships of professional sports teams have put CUs on the same playing field as Apple, McDonald’s and GM.
In a response published by U.S. News & World Report, NAFCU Chief Economist Curt Long stated that Furchgott-Rott’s “…arguments and the picture she attempts to paint about credit unions are seriously flawed and should be corrected.”
Long cited a NAFCU study that found doing away with the credit union tax exemption would over the next 10 years cost the federal government $38 billion in lost revenue, reduce GDP by $142 billion and kill off nearly 900,000 jobs.
“U.S. consumers are benefiting from the existence of tax-exempt credit unions to the tune of $16 billion a year; in the 10-year period covered by the study, that added up to $159 billion,” wrote Long. “Over 10 years, total credit union member benefits were estimated to be $56.7 billion. A 50% reduction in credit unions' market share would cost bank customers an estimated $6.9 billion to $15.7 billion a year in higher loan rates and lower deposit rates.”
Long notes that Furchgott-Rott’s criticism of CU service to low-income Americans is based on a 2006 GAO study that predates the financial crisis. He also cites a 2011 SBA study showing CUs increased their lending to small businesses during the crisis, while banks did not.
“There are numerous differences in the way banks and credit unions operate. For example, credit unions are still held to strict field-of-membership requirements, and banks are not,” wrote Long. “Credit unions cannot issue capital stock; banks can. Credit unions direct their income back to the operation for the benefit of all their members. By contrast, about one-third of U.S. banks enjoy Subchapter S status, which allows banks to distribute untaxed profits to shareholders.
“When the administration and Congress start looking at the details of comprehensive tax reform, they might – as Furchtgott-Rott suggests they do – wonder how to get a tax code that doesn't pick winners and losers,” Long continued. “But if the credit union tax exemption is an example of Congress picking winners, the data show exactly who those winners are: America's taxpayers.”