WASHINGTON–The National Taxpayers Union has issued a statement saying credit union acquisitions of banks “raise questions” about the credit union tax exemption.
The organization, which calls itself a fiscally conservative taxpayer advocacy organization, issued the statement during the same week credit unions were in Washington for America’s Credit Unions Government Affairs Conference.
In its report, the NTU noted credit unions bought 16 banks in 2022 and 11 more in 2023.
“When credit unions purchase banks, they are removing a taxed business from certain types of tax rolls thanks to policies toward credit unions, including non-profit status and the resulting tax exemption,” the NTU said citing a Joint Committee on Taxation report that suggested the negative revenue impact of the credit union tax exemption as $14.4 billion between 2022 and 2026.
“Because this figure does not take into account the increasing number of banks purchased and absorbed by credit unions, this cost will probably be higher,” the organization stated.
The report goes on to further suggest many “credit unions across the country have shifted away from the original intent of their creation and now rival major financial institutions. As Congress explores options to extend the Tax Cuts and Jobs Act of 2017 and otherwise create a tax code with lower rates and a broader base, it should closely examine the tax status of large credit unions among many other policy options.”
Additional Statements in Report
Other statements made in the report include:
- “The National Credit Union Administration (NCUA) charters and oversees credit unions, but offers little public transparency despite being an executive agency. The Government Accountability Office (GAO) undertook a study of credit union transparency in 2006 and released their report “Greater Transparency Needed on Who Credit Unions Serve and on Senior Executive Compensation Arrangements.” This report had two major recommendations for the NCUA and credit unions: track and monitor how well credit unions serve low and middle-income individuals and report on executive compensation.
“No executive compensation reports have been published in the intervening 18 years. The former recommendation is listed by the GAO as “implemented” but the reality is that NCUA still has yet to open up about how well they achieve their stated purpose,” the NTU continued. “While the Member Service Assessment Pilot program was launched in 2006 and the NCUA established the Outreach Task Force both to review membership profiles and data, none of the data collected by NCUA has been published.”
- “The data shows that more educated and better-off households have a higher likelihood of belonging to a credit union. Data from the Federal Reserve’s Survey of Consumer Finances has consistently shown that compared to banks, credit unions serve fewer low and moderate-income households. GAO cited this data in testimony before the House Ways and Means Committee in 2005 on oversight of the tax-exempt sector and whether the original basis for the tax exemption for credit unions is still valid. “Despite the lack of evidence for credit unions providing services to the unbanked and underserved, more and more credit unions are granted status as “low-income” institutions,” the statement continues. “Rather than stemming from the actual socio-economic status of its members, credit unions can achieve this designation by having a majority of its members live in a geographic area that qualifies as low-income.”
- NTU noted it “wrote in 2020 on “growing concerns” around credit unions and overdue scrutiny of their practices from Congress. The trends from four years ago have only become more pronounced. NTU opposes higher taxes and advocates for minimizing tax rates and burdens on businesses. However, a properly functioning tax code requires a fair and equal application of taxes, which involves lowering rates and broadening the base. “The credit unions of today so closely resemble other, taxed financial institutions that their tax-exempt status seems a product of a bygone era,” its statement continued. “In the 1950s, less than a quarter decade after the passage of the Federal Credit Union Act, the IRS released a report on credit unions. Even then, the IRS found that, had credit unions functioned like other taxable financial institutions (as they increasingly do today), ‘it seems probable that Congress might not have continued their exempt status’.”
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