WASHINGTON–The president of the Tax Foundation has authored an op-ed that uses credit union sponsorship of sports arenas as a reason the CU tax exemption is no longer necessary.
Scott Hodge, arguing that credit unions “were designed to be nonprofit financial institutions that serve a narrowly defined base of members underserved by traditional banks,” said that original mission no longer holds true.
As an example, he pointed to the 850,000-member Golden 1 Credit Union in Sacramento, Calif., for committing $120 million over 20 years for the naming rights to the arena home of the NBA’s Sacramento Kings. Hodge also cited a tagline used by Golden 1 that, “We offer the same products, services, and stability you’d find at a traditional bank?”
Hodge also pointed to two-dozen other naming rights deals by credit unions.
“By their own admission, Golden 1 Credit Union has all the makings of a commercial bank, albeit one with a federal tax exemption,” wrote Hodge, who went on to cite the asset size of Navy Federal Credit Union ($82 billion) and State Employees’ Credit Union ($36 billion).
“Unlike banks, which are either privately owned or publicly traded corporations, credit unions are cooperatives, which means they are nonprofit corporations intended to serve a defined membership base that has a unique ‘common bond’ and return their profits to these members in the form of interest payments or cheaper services,” said Hodge. “It appears from the way credit unions are marketing themselves that they no longer feel bound by the field of membership restriction, or believe they can stretch the rules to include entire communities or, seemingly, the public at large.”
“To be sure, the threat of losing their exemption will spur credit unions to flood Capitol Hill with dire stories about how such a policy will devastate their members and customers,” continued Hodge. “Indeed, the National Association of Federally-Insured Credit Unions (NAFICU) responded to Hatch’s letter by pointing to a 2017 NAFCU-funded study estimating that repealing their tax exemption would “cost the federal government $38 billion in lost income tax revenue over the next 10 years. GDP would be reduced by $142 billion, and 883,000 jobs would be lost over the course of the next decade as well. Such studies amount to one-sided accounting, ignoring the fiscal costs of the taxpayer subsidies to credit unions and the economic impact that their tax-advantaged competition has on taxpaying for-profit banks. And, how is it that repealing the tax subsidy that is already costing the federal treasury some $36 billion over the next decade could ‘cost’ the federal government $38 billion? That makes no sense.”
Hodge said that most large banks are organized as C corporations and the recent tax legislation lowered their tax rate to 21%. Community banks are frequently organized as pass-through businesses, such as S corporations, he noted, which pay taxes at the owner level, not the entity level.
“These businesses were given a 20% tax deduction from the highest individual rate they would be subject to (as high as 37%),” Hodge said. “Thus, depending upon how they choose to organize themselves after the removal of their tax exemption, credit unions can compete equally with commercial banks at these lower tax rates.
“Credit unions were becoming anachronisms before the enactment of the TCJA, but that status should be declared official now that the tax gap between banks and credit unions has effectively been closed,” Hodge continued. “If they are going to act like banks and subsidize sports stadiums like banks, it is time that they paid taxes like banks.”