By Ray Birch
DES MOINES, Iowa—The sheer number of community banks in this state has always led to banker assaults on the credit union tax exemption, including the ongoing attacks in the legislature.
But what will stall bankers’ latest efforts, according to the Iowa CU League, is what has virtually always won in the past—alerting legislators of the impact CU taxation will have on the pockets of so many Iowans.
As CUToday.info reported, credit union advocates have been pushing back against a state Senate bill that would increase taxes on Iowa’s credit unions, while lowering taxes for banks. Iowa banks currently pay a 5% state franchise tax on profits. Credit unions pay a state moneys and credits tax of 0.5% on their legal reserves. The Iowa Bankers Association believes the bank franchise tax should be levied on the state's credit unions — particularly the largest ones, and they've urged taxpayers and lawmakers to question credit unions' not-for-profit status.
The bill passed the Iowa Senate at the end of February.
The fight has led to dueling advertising campaigns on the airwaves as well as point/counterpoint letters to the editor in publications across the Hawkeye State.
“It’s just about a regular message we hear,” said Justin Hupfer, vice president of government affairs at the Iowa Credit Union League. “Raising taxes on Iowa credit unions has been on the Iowa Bankers Association’s agenda for decades.”
300 Community Banks
The impetus for the Iowa bankers’ efforts, and the support behind them, comes from the nearly 300 community banks in this state, said Hupfer.
“They can rally a large number of banks toward a common cause,” said Hupfer, who has been with the league for 17 years.
What has beaten back the bankers over the years, Hupfer continued, is explaining not how taxes impact credit unions, but how taxes on credit unions impact Iowans.
“Our success has always been rooted in what is good for Iowa,” said Hupfer. “We speak with legislators about what is good for consumers. Iowa banks have 95% of the business loans, 86% of the deposits, six years of record profits—in 2016 Iowa banks enjoyed $957 million in profits. They are doing extremely well and are dominating the market, yet they want to eliminate competition and choice, which benefits Iowa consumers.”
Hupfer said the league in all of its grassroots messages is asking legislators to look at this issue through the lens of “not what is good for stockholders of banks, but what is good for consumers. I think that over the year legislators have understood that the answer has always been that raising taxes on credit unions is not good for consumers.”
Attention Now On House
With the bill to tax credit unions passing the Republican-controlled state Senate, Hupfer said the league is now focused on the House.
“We are working to re-orient this message around the consumer impact it will have, how if credit unions face higher taxes in Iowa that it will lower consumers’ checking account rates and increase their loan rates, and give them less money every month to pay their bills,” Hupfer said. “We have felt for years that Iowa policymakers have understood the balance that works in this state—banks dominate yet credit unions provide choice and competition and up until this year that has worked.”
If the Senate bill stands as is and there are no changes reconciled from a House bill, the new tax law would likely impact the 20 largest credit unions in this state, estimated Hupfer.
“That would represent an impact on about 60,000 Iowans,” said Hupfer.
Bankers have been successful so far in their 2018 efforts simply because an opportunity arose and they capitalized, asserted Hupfer, who acknowledged this is one of the strongest efforts by bankers in years.
“The bankers see this as an easy opportunity with a tax reform bill that is moving. This is not a standalone bill of theirs, and they don’t want have to debate over the issue separately. They just want to tuck it in there somewhere at the last minute, which is what happened in the Senate—the bankers at the last minute were able to get the Republican Senate to put this in,” said Hupfer, who acknowledged that the opportunity presented to Iowa bankers this year is one that does not come around often. “When was the last time there was a tax reform bill in this state? It’s been quite some time.”
But the league is counting on its lobbying and grassroots efforts, which last week included a rally on the state capitol in Des Moines, to win support in the House.
“The Iowa House is not working off the senate tax reform bill, they are working off Gov. (Kim) Reynolds (R), who is behind a bill that we like. It does not make any changes to credit union taxation. So, we have to work with the Iowa House to make sure that bill the House passes does not include any increased taxes on credit unions.”
Calling On CU Members
Hupfer said the league has been calling on the 1.1 million credit union members in this state to email and call their legislators, and to show up at town hall events that are being held over the next several weeks.
“We want to get a bill in the House that is good for credit unions and our members, and then it becomes a negotiation at some point between the House and the Senate,” said Hupfer. “We hope to have Gov. Reynolds support on this issue, because I don’t think she wants a bill that will raises costs for 600,000 Iowans to come to her desk.”