WASHINGTON–The debate around tax reform in Congress is being used as a prime opportunity by bankers to call for eliminating the credit union tax exemption.
The bankers' efforts, however, have failed to influence Congress, as the CU tax exemption survived the final form of the tax reform legislation.
The most recent examples include a list of the “Top 10 Credit Union Abuses” of their tax status and a letter to the editor of the Wall Street Journal—and other publications—arguing it’s time for Congress to end the exemption.
Writing on TheDailyCaller.com, a conservative website founded by Tucker Carlson and Neil Patel, Drew Johnson, a senior fellow with the right-leaning National Center for Public Policy Research, listed his “Top 10 Credit Union Abuses of Their Non-Profit Tax Status.”
“If federal leaders are as committed to fairness and eliminating favoritism as they claim, Congress should eliminate big credit unions’ egregious abuse of their non-profit status to gain an unfair advantage,” wrote Johnson. “Under an antiquated law, the Internal Revenue Service allows credit unions — even ones with billions of dollars in assets and CEOs receiving seven-figure salaries — to operate as tax-exempt charities, just like disaster relief organizations, food banks, animal shelters and after-school programs. This peculiar rule gives credit unions an unreasonable upper hand when competing against tax-paying banks.”
According to Johnson, the Top 10 ways “wealthy credit unions” are abusing their tax status include:
- Sponsorship of stadiums, including an NBA Arena for $120 million. “Golden 1 Credit Union paid $120 million for naming rights for the facility housing the Sacramento Kings. Why do not-for-profit entities need to sponsor NBA arenas?”
- Lobbying and campaign donations. “Credit unions donate millions of dollars to trade associations and political action committees (PACs) that use the money to lobby Congress and influence elections in the hopes of maintaining their indefensible tax advantage.”
- · Hiding behind the military flag to serve everyone. “The $22.8 billion Pentagon Federal Credit Union proudly states that being part of its original service group — military families — isn’t necessary anymore. The credit union now calls itself “PenFed,” dropping the word Pentagon in its national ads that promise “great rates for everyone.” PenFed even trumpets that no military service is required. Don’t military families lose when the institution spends millions advertising to the masses?”
- Trying to get anyone as a customer: Credit unions are supposed to serve small groups or communities united by a common bond. The $1.8-billion Elevations Credit Union makes a mockery of this, advertising that “being human” is what it takes to be a member.”
- Untaxed, unrelated side businesses. “Many of these “not-for-profit” entities have expanded into side businesses, such as Pentagon Federal Credit Union’s Berkshire Hathaway PenFed Realty…”
- Swallowing up taxpaying banks, expanding tax subsidies. Large tax-exempt credit unions are increasingly purchasing small tax paying banks.
- Sponsorship of professional sports franchises. “At least two NFL franchises, the New York Jets and the Houston Texans, are sponsored by credit unions. Why do not-for-profit entities need to sponsor NFL teams?”
- Private aircraft and other “toy” loans for the affluent. “Minnesota-based Wings Financial Credit Union offers “toy loans” for luxury items like yachts, RVs, and private aircraft.”
- Self-dealing executives. “Many credit union CEOs make millions. For example, as the Denver Post discovered, “Denver-based Public Service Credit Union, a not-for-profit, awarded its president and chief executive, David Maus, $11 million in 2010, a sum so large it has rocked the credit union world and beyond.”
- Anti-consumer behavior. “While credit unions trumpet their customer-owned structure (which is also shared by tax paying mutual banks), many behave in anti-consumer ways. For example, the Consumer Financial Protection Bureau (CFPB) fined Navy Federal Credit Union $28.5 million for making false threats about debt collection to its military members.”
Separately, in a letter published by the Wall Street Journal, American Bankers’ Association Chairman Ken Burgess wrote, “At a time when Congress is asking everyone from teachers to homeowners to give up tax breaks in the name of lowering rates, why is the trillion-dollar credit-union industry still getting a free ride?”
Burgess argued today’s credit unions look nothing like those of the 1930s. “It’s time for Congress to end the uneven playing field and require the nation’s billion-dollar credit unions to pay their fair share,” Burgess added.
Burgess is chairman of FirstCapital Bank of Texas in Midland, Texas.