LAKE FOREST, Ill.—The new tax bill will make 2018 a different year for credit unions for five reasons, according to one analysis.
While credit unions and their trade groups largely focused on celebrating the preservation of the CU tax exemption in the tax reform bill recently signed by the president, CUToday.info has launched a series examining how it will have implications in a number of other ways.
“The key words are planning and preparation for every credit union,” said Michael Moebs, economist and CEO at Moebs $ervices. “This includes knowing the deposit amounts the credit union needs to retain every member, and having credit available for consumers who want to borrow against their taxes and remodel their homes. If the credit union wants more small business activity, this will be the time to have very favorable and swift credit available. 2018 will be an exciting time and very different than the past 10 years.”
According to Moebs, the long-term implications of tax reform for consumers, businesses and credit unions include:
1. Economic growth next year will hit 3% or higher
“This will be led by businesses investing more in greater productivity due to a lower corporate rate, and less taxes for pass-through businesses or those with Subchapter S status,” said Moebs. “The Obamacare tax on small businesses will be eliminated, also sparking greater utilization of money by the firms that create 70% of the jobs in America, according to the Federal Reserve. Credit unions need to be prepared to take advantage of this growth with good share rates and credit availability.”
2. Consumers will start to relinquish checking account money they have stored up
“Small business will do the same,” said Moebs. “This amounts to over $1.1 trillion hitting the economy. November 2017 retail sales increased more than in the last five years. Consumer confidence is at its highest level in 17 years. Credit unions must prepare not to lose much in deposits by offering those with $10,000 or more in deposits favorable rates. This is also the time to get business checking accounts in order to generate fee revenue and calculate deposit balances correctly in order to gain new business deposits.”
3. As businesses and consumers get tax relief in February and March with higher paychecks and less business tax paid, there will be a need for credit by both small businesses and consumers
“Credit unions need to be prepared to lend to small businesses quickly and in favorable terms. Breathing down the necks of credit unions and banks are the fintech firms offering easy application, quick analysis and credit availability,” said Moebs. “As an example, some consumers will want refunds of 2017 taxes faster, so loans tied to tax refunds will see a big boost in 2018. For credit unions having the capacity for more business lending, making both secured—and most significantly unsecured—credit available will be important to increase business members and the revenue they generate.”
4. In mortgage lending, credit unions will not be constrained by the $750,000 mortgage interest deduction cap
“Most mortgages of credit union members are about $300,000, so they will not be limited in deducting mortgage interest,” said Moebs.
5. The limit of $10,000 deduction on state and local incomes taxes combined with property taxes will have an effect on credit union members—including small business members—in the East and California
“This $10,000 limit will affect middle-class consumers, and most credit union members are middle class,” said Moebs. “However, with the doubling of the standard deduction and the childcare credit, this limitation will result in an increase for the consumer in deductions. Credit unions need to be aware some members may need credit assistance with their tax bills.”