PIERRE, S.D.–South Dakota’s bankers used this year’s tax filing deadline to launch ads attacking the credit union tax exemption as part of a broader effort sponsored by the American Bankers Association.
The ads, part of the ABA’s “It’s time to pay your fair share” campaign, ran in several newspapers in this state last week and are expected again this week.
On the Credit Union Association of the Dakotas’ blog, CEO Jeff Olson wrote, “While the release of the campaign comes as no surprise, it is somewhat frustrating as we (credit unions and community banks) are focused on easing the regulatory burden that is both operationally costly and prevents us from properly serving our members and their financial needs.”
South Dakota’s bankers have been among the most vocal in criticizing the CU tax exemption. CUNA has stated on numerous occasions that with bankers having failed to make any headway at the national level, CUs should expect to see banks move their attacks to the state level.
“We are currently engaging our strategic response, one that will highlight banker arrogance and positively promote credit union awareness at the same time,” wrote Olson.
In the same blog posting, Olson added that in 2015 “my counterpart at the South Dakota Bankers Association published an editorial in their monthly South Dakota Banker magazine calling for a debate…Ok, my immediate response was, when haven’t we debated this issue? This debate has been going on for more than 80 years. Why the South Dakota Bankers (and the ABA, for that matter) devote so much time and energy on ‘shouting at the rain’ on this issue is kind of mind boggling, really. I was under the impression they simply don’t get it. Well, I perhaps I’m wrong. The banks’ problem isn’t that they don’t get it. The real problem here is that they can't sell it! Here is a fact to support that theory: The rationale for the credit union tax-exempt status has been supported or ratified several times by Congress, including in 1935, 1936, 1937, 1951, 1998, 2005, and as recently as 2014 (House Ways and Means Committee). We as a financial service industry have serious regulatory issues to solve, ones that are impacting our ability to serve our members and consumers. Perhaps someday we can work together to solve them. As a far having ‘debate now,’ my response is anytime, anywhere!”
Meanwhile, American Bankers Association President and CEO Rob Nichols also used tax day to send a letter to Congress urging lawmakers to end the credit union tax exemption. In the letter Nichols said the 10-year cost estimated by the Congressional Budget Office of the CU tax exemption is $27 billion.
Nichols suggested the line between banks and credit unions has blurred over time, and that the Great Depression-era tax exemption is no longer justifiable for the $1.1 trillion credit union industry.
“The benefits of tax exemption are rarely ever passed along to consumers; recent research has shown that in most cases, credit unions leverage the tax subsidy to raise employee salaries or expand the size of their institution,” Nichols said.
Nichols told Congress that the credit union argument that the tax-exempt status is due to being member-owned should not matter, as other member- and customer-owned structures such as mutual savings banks and thrifts have been subject to federal income taxes for decades.
“The status quo is unacceptable,” Nichols wrote. “On this day, when individuals and businesses will settle up with the government for nearly $2 trillion in federal income taxes, it is simply not fair that the entire credit union industry pays nothing. The public policy justification disappeared long ago and taxpayers should no longer subsidize these large aggressive credit unions.”
The ABA’s website has information here.
Responding to ABA's claims, NAFCU President and CEO Dan Berger's sent a letter Monday to Ways and Means Committee Chairman Kevin Brady that the trade association stated "debunks" the ABA's "erroneous claims regarding credit unions' tax exemption."
In the letter, Berger noted, "The ABA’s attack is the height of arrogance when you realize that a majority of these fines and penalties are tax deductions for the banks! Analysis of these settlements has put the tax break value of these fines at nearly $17 billion a year over the last few years – over 10 times the 2015 tax expenditure estimate for credit unions ($1.69 billion) in the President’s annual budget request."
Berger also cited the value of credit unions to Main Street America. "The cumulative benefit credit unions provide the greater economy totals over $17 billion a year according to an independent study released by NAFCU in 2014." This same study found that "eliminating the credit union tax exemption would result in the loss of 150,000 jobs a year (nearly 11,000 of which are estimated to be lost in Texas), a shrinking of the GDP and a net loss of revenue to the federal government."
Additionally, Berger stated, "What the bankers do not tell you is that nearly one-third of banks are Subchapter S corporations and pay no corporate income tax. He remarked, "If credit unions have such an extraordinary advantage, why aren’t banks lining up to convert to credit unions?"