By Ray Birch
ARLINGTON, Va.—With the banking industry zeroing in on the CU tax exemption with more attention than ever before, a new study from NAFCU seeks to quantify the value CUs return to consumers and the economy—a value the trade association says has been growing in recent years.
NAFCU Chief Economist and VP of Research Curt Long said that message is even more important to share this year.
NAFCU has released a new study that examines the economic benefits of the credit union tax exemption to consumers, businesses, and the U.S. economy. The study concluded that all consumers benefit from having credit unions as an option in the financial marketplace, and further suggests that elimination of the credit union tax exemption–which was enacted as part of the Federal Credit Union Act of 1934–would have far-reaching consequences for consumers and the economy.
Specifically, the study found that abolishing the CU tax exemption for credit unions would reduce tax revenue by $56 billion and reduce economic activity by $120 billion over 10 years. The study further found the move would eliminate 80,000 jobs a year over 10 years.
“This is not the first time we have performed this type of study,” stated Long. “We did one that was similar in 2017. Why did we decide to do another now? Well, at NAFCU, we believe defending the credit union tax exemption is always a big priority to us. However, this year it is especially important with the fiscal realities facing the country.”
Bank Groups Step Up Attacks
The release of the tax study comes at the same time several banking industry trade groups have been increasing their public attacks on CUs’ tax-exampt status. As CUToday.info reported, The American Bankers Association just launched a digital broadside against CUs—a new website called “Reform Credit Unions.” The Independent Community Bankers of America (ICBA) has launched a national media blitz and website that questions if credit unions have “lost their way.”
“So, we wanted to tell our side of the story,” Long said.
Long reminded that the primary objective of the report is to share the data with members of Congress.
“We released this study in September in conjunction with our Congressional Caucus, sharing it with our members who attended so they would take the information from the report and share its key messages with their representatives in Washington,” he said.
A Key Finding
Long emphasized that a key finding in the study is the value of the credit union tax exemption has increased in recent years. He explained that while the study leans on averages of data over the previous 10 years and also projects forward by a decade, a closer look at the data reveals a critical trend.
Curt Long
“If you break the data down year by year, we've actually seen the value of the credit union tax exemption increase in 2019 and 2020,” Long said.
What is driving the increase in the value of the tax exemption? Rates, according to NAFCU.
The new 2021 analysis found the CU tax exemption represents $15 billion in bottom-line benefits to American households per year.
“Our study is looking at basically starting from the point of interest rates. So, it's lower interest rates on loans and higher rates on deposits that the tax exemption allows credit unions to deliver to members,” Long said.
Move Would Lead to Higher Fees
Long stated that if the CU tax exemption was lost, credit unions would then have to charge higher loan rates and drop deposit rates.
“(CUs) could not provide the same great rates they do today, which would hurt household bank accounts of members and also have an impact on the overall economy,” Long said.
Weaker household balance sheets would lead to lower tax revenues from credit union members, while a weaker overall economy would mean consumers would spend less, leading to job losses and other economic pan, said Long.
Long believes the data from the study counters bankers’ arguments that credit union purchases of banks lead to a loss of tax revenue as the result of a tax-paying entity leaving a community in favor of a tax-free cooperative.
A Lesson from Kindergarten
Long also rejected bankers’ claims that elimination of the credit union tax exemption would provide a significant source of tax revenue are false.
“The tax revenue lost from the CU tax exemption is extremely small,” Long said. “It's really not that big. It’s less than .1% of the 2020 federal budget deficit. I like the analogy I used during our Congressional Caucus—if the total deficit were the height of the Washington Monument, the CU tax exemption would be the size of an average kindergartener.”