By Jason Stverak
In Washington, a battle is brewing over the future of our community-focused credit unions. The Independent Community Bankers of America (ICBA) is lobbying Congress to end the federal tax exemption for credit unions over $1 billion in assets, framing it as “ending an unfair subsidy.”
But let’s call this push what it really is: a blatant attempt to eliminate competition by punishing the very institutions that put consumers and communities first. Stripping credit unions of their tax exemption won’t help taxpayers or level the playing field – it will line banks’ pockets at the expense of working families and small businesses. This isn’t about fairness; it’s about Wall Street-driven banks trying to snuff out nonprofit credit unions that challenge their market share.
Banks Dodge Taxes While Crying ‘Unfair’
The ICBA complains that credit unions “avoided” nearly $4 billion in federal income taxes in 2022 by virtue of their tax-exempt status. What they won’t tell you is that over 2,000 banks have elected Subchapter S tax status – a maneuver that lets them pay zero corporate income tax, saving those banks an estimated $1.8 billion in 2022 alone.
In total, these Subchapter S banks (including some over $1 billion in size) collectively dodge billions in taxes every year. On top of that, banks exploit tax tricks like accelerated depreciation on their facilities and equipment to further shrink their IRS bills. All of this is perfectly legal – and perfectly hypocritical when the same banks complain about credit unions’ tax status. This double standard is stunning.
Banks enjoy massive tax breaks and even taxpayer bailouts, yet have the gall to label credit unions’ modest tax exemption as “unfair.” Let’s not forget the hundreds of billions in federal bailouts banks received during the 2008 crisis and other economic emergencies. The ICBA’s notion that banks are somehow underdogs victimized by credit unions’ tax treatment is misleading.
Some of the very banks shouting about “fairness” pay no corporate taxes themselves via Subchapter S and then funnel those tax savings to shareholders – not local communities. In fact, banks devote only about 1% of their profits to community reinvestment, with the other 99% flowing to shareholder dividends and executive bonuses. So much for supporting Main Street.
If ICBA truly cared about tax fairness, they would be asking Congress to also end banks’ tax loopholes.
Credit Unions: Member-Owned and Community-Focused
Credit unions, by contrast, exist for an entirely different purpose.
They are not-for-profit cooperatives owned by their members, whether those members number in the hundreds or the millions. Even the largest credit unions operate under the same member-first principle as small ones. Their tax-exempt status is not a “subsidy” or loophole – it’s a reflection of their unique mission to serve communities rather than maximize profit.
Unlike banks, credit unions have no Wall Street investors to please and no incentive to gouge customers to pad stock prices. Every dollar of earnings a credit union makes is either reinvested into better deals for members or saved as capital to keep the institution safe – there are no billionaire stockholders waiting for a payout.
This difference in mission and structure is exactly why Congress granted credit unions a tax exemption in the first place: recognizing that credit unions serve “people of small means” and provide social benefit, instead of enriching private owners.
The benefits of this member-owned model are enormous.
By returning profits to members in the form of lower loan rates, higher savings yields, and fewer fees, credit unions save consumers at least $12 billion every year. One federal study found the average credit union member saves about $220 per year in fees compared to if they used a bank. It’s no wonder roughly 140 million Americans – nearly 40% of the U.S. population – choose to bank with a credit union.
And even if you’re not a credit union member, you likely still benefit from their presence.
A recent analysis showed that credit unions’ competitive pressure forces banks to offer better rates; if credit unions’ market share were cut in half, bank customers would pay up to $9.9 billion more per year in higher loan interest and lower deposit yields. In short, credit unions keep everyone’s costs down, not just their members’.
Crucially, credit unions fulfill a community-centric role that big banks often won’t. They specialize in serving groups that mainstream banks overlook – low-income families, small businesses, rural communities, and even our military service members.
In 2022 alone, U.S. credit unions poured over $20 billion into community programs – from affordable housing projects, to small business loans, to free financial literacy classes. These investments target underserved areas that big banks routinely ignore or abandon. For example, credit unions make 20% more small-dollar loans (under $5,000) than banks, often providing a lifeline to local entrepreneurs and working-class borrowers who might otherwise fall prey to payday lenders. They host financial education workshops, teach budgeting in schools, and offer one-on-one counseling to help people build credit.
And let’s talk about accessibility: over 70% of credit union branches are located in low- and moderate-income communities, compared to just 50% of bank branches. In neighborhoods where a few hundred dollars in saved fees or interest can be life-changing, credit unions are often the only lender willing to help when no one else will. This is the community “credit union difference” that banks simply don’t match, and it’s exactly what ICBA’s proposal would put at risk.
Let’s Call It Like It Is: These Attacks Are About Killing Competition
Why, then, is the ICBA so eager to tax credit unions? It’s not because credit unions are harming consumers or dodging taxes in some nefarious way – it’s because credit unions are competition.
The tax exemption helps credit unions offer better deals, which pressures banks to lower their own prices. Rather than compete by improving their services or rates, the banks (through the ICBA) prefer to just kneecap credit unions by stripping away a key structural advantage.
In plain terms, they want to eliminate competition from credit unions so they can widen their profit margins. ICBA’s messaging gives away the game: they frequently gripe community banks selling to credit unions and credit unions “taking market share.” This isn’t a crusade for justice; it’s an attempt by banks to grab a bigger slice of the pie by pushing aside institutions that put people first.
And regarding Subchapter S discussions… do we hear ICBA calling to end those bank tax designations? Of course not.
The ICBA’s focus on credit union taxes is a strategic distraction, aiming to paint member-owned cooperatives as freeloaders while banks quietly protect their own tax perks. It’s a textbook case of speaking out of both sides of their mouth – condemning credit unions for a tax advantage that these banks themselves often share in other forms.
Main Street Loses, Wall Street Wins
What would happen if Congress heeded the ICBA’s call and slapped taxes on credit unions over $1B in assets? Nothing good for Main Street.
Because credit unions have no outside owners, any taxes they pay would come directly out of their members’ pockets in the form of reduced benefits. Every dollar a credit union pays in taxes is a dollar less available to cut a single mom’s auto loan rate, approve a first-time homebuyer’s mortgage, or waive a small business’s monthly account fees. The inevitable result would be higher loan rates, higher fees, and fewer services for the 139+ million Americans who count on credit unions. Taxing credit unions is effectively a tax hike on working-class families and small businesses, delivered indirectly via their credit union accounts.
Research backs this up. A study commissioned by the National Association of Federally-Insured Credit Unions (NAFCU) found that eliminating the credit union tax exemption would actually reduce U.S. economic growth and even shrink federal revenues in the long run. Specifically, the study projected the U.S. economy would forfeit about $120 billion in economic activity over the next decade, and the government would lose an estimated $56 billion in taxes that would have been generated by credit unions’ community-driven lending. Why? Because without their tax advantage, credit unions couldn’t offer the same affordable loans and community investments that help people buy homes, start businesses, and spend in their local economies.
In other words, ICBA’s proposal is so draconian that even Uncle Sam could end up collecting less tax revenue because of the economic damage it would cause. When a policy is bad enough that it hurts the government’s coffers, you know it’s a loss for the public.
The biggest risk would be to the everyday American — the middle- and lower-income populations, the underserved communities, that credit unions serve in droves.
Working families could see their mortgage or car loan rates tick up and find new fees tacked onto accounts. That local credit union branch in a rural town or inner-city neighborhood might shut its doors because it becomes unprofitable to operate under a tax burden. Small businesses would struggle to find the micro-loans and lines of credit that credit unions (not Wall Street banks) specialize in providing. And let’s not forget our military families and veterans who rely on defense-oriented credit unions for tailored financial counseling and emergency loans – they would lose out on support programs that only mission-driven, not-for-profit lenders offer.
In short, the ICBA’s agenda would yank away a financial safety net that millions rely on, all to give Wall Street banks a larger slice of the market.
Protecting Communities, Not Profits
ICBA’s rhetoric conveniently ignores a fundamental truth: banks maximize profit, whereas credit unions exist to maximize service. The contrast is stark.
U.S. banks hauled in around $250 billion in profit last year, yet gave back only crumbs to community causes. By one analysis, banks dedicate a measly 1% of their profits to community reinvestment initiatives, while credit unions plow nearly 100% of their earnings back into local communities – whether by offering a lower mortgage rate to a first-time homebuyer, opening a branch in a “banking desert,” or sponsoring the local Little League team. In 2022, credit unions reinvested tens of billions of dollars into efforts that boost the financial health of ordinary people. They did this not for PR or because of a mandate, but because it’s their core mission.
That’s why the so-called “tax subsidy” for credit unions is not a gift or handout – it’s an investment in our communities that pays enormous dividends. For every dollar in federal tax not collected from credit unions, far more than a dollar is returned to consumers in tangible benefits.
Lawmakers and citizens should see the ICBA’s campaign for what it is: a self-serving effort to hamstring community-based lenders and drive more business to profit-hungry banks.
If Congress is truly concerned with fairness, it should start by asking what we get in return for banks’ tax breaks – higher executive bonuses and stock buybacks? – versus the public good that comes from credit unions’ tax status. The comparison isn’t even close.
Bottom line: Taxing credit unions won’t level the playing field; it will level many of our community institutions that provide hope and opportunity in the places that need it most.
We shouldn’t punish credit unions for fulfilling their mission. We should be celebrating and protecting these member-owned financial cooperatives – because when credit unions thrive, our communities thrive. Don’t let the Wall Street lobbyists fool us: taking away credit unions’ tax exemption would harm millions of everyday Americans while benefiting only the big banks who can’t stand a little competition. It’s a bad deal for Main Street, and our representatives in Congress should outright reject it.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.