WASHINGTON–Citing a number of new reasons for revoking it, the credit union tax exemption is once again among four tax code-related priorities a banking industry trade group wants Congress to take action on.
In a letter to the members of the Main Street Tax Team on the House Ways & Means Committee, the Independent Community Bankers of America (ICBA) stressed four areas on which it wants the committee to act, including:
- Permanently extend key expiring provisions of the Tax Cuts and Jobs Act
- Maintain low corporate rate
- Enact Access to Credit for Our Rural Economy (ACRE) Act to “strengthen rural America.”
- Review credit union tax exemption
The ICBA said community banks are critical in numerous communities across the U.S. and are, according to the FDIC, the only physical banking presence in one in three U.S. counties.
“Specializing in small business and agricultural lending, community banks are responsible for the majority of Main Street small business loans and 70%,” the letter states.
‘Outdated Extension’
Under the heading, “Outdated Credit Union Tax Exemption Is Ripe for Review,” the ICBA wrote that it is “encouraged by the committee’s scrutiny of tax-exempt institutions, including universities and non- profit hospitals. These institutions are entrusted with a public mission and must be held to account by Congress when they fail in that mission.”
To that end, the ICBA said Congress should review all tax-exempt institutions.
‘Outstripped Their Public Mission’
“Notably, today’s multi-billion-dollar credit unions have outstripped their public mission and tax- exempt purpose and are now even leveraging their tax-exemption to purchase tax-paying community banks,” the organization said. “The pace of these acquisitions in recent years is driving the consolidation of financial services across all markets, to the harm of consumers and small businesses.
“As you grapple with the cost of extending expiring tax relief, every tax expenditure should be rigorously interrogated,” the letter continued. “Modern credit unions exploit a tax exemption created to “serve people of modest means” within defined fields of membership. The largest credit union today, Navy Federal, has assets of $168 billion, dwarfing the size of a typical community bank with assets of less than $1 billion. The credit union tax exemption subsidizes multi-million-dollar executive pay, outsized marketing budgets, sports stadium naming rights, lavish headquarters, and increasingly, acquisitions of community banks rooted in their communities for decades.”
Additional Allegations
The letter further alleges:
- NCUA’s interpretation of the concept of field of membership has reached “the point of meaninglessness"
- CUs now offer wealth management and financing of private aircraft
- Pentagon Federal Credit Union has partnered with Goldman Sachs to finance luxury mixed-use developments in Washington, D.C., with an $847 million loan to develop Phase II of the DC Wharf. “This is not serving people of modest means,” the letter states.
“As there is no longer any meaningful distinction between credit unions and commercial banks, we believe they should be taxed equivalently. ICBA has developed a menu of options for taxing credit unions and would appreciate the opportunity to discuss them with you,” the trade group told committee members.
‘Nothing New’
“ICBA writing Congress to complain about credit unions is nothing new,” said John McKechnie, who advocates on behalf of credit unions on Capitol Hill. “The important thing to consider is the possibility of a tax bill next year—how broad is Congress going to go in looking at the tax code? Credit unions will be wise to be very watchful as this process unfolds.”
Other Issues Raised
Here’s what the letter also says, in part, about its other three priorities:
Extension of Expiring Tax Provisions
The ICBA is urging permanent extension of the expiring provisions of the TCJA to create certainty for American taxpayers, including passthrough businesses taxed through the individual tax code.
“Many community banks have chosen the Subchapter S model which provides that income and losses of the bank are not taxed at the entity level but rather on the returns of the individual shareholders,” the ICBA said. “While Subchapter S was created in 1958, it was first made an option for banks in 1996 in legislation promoted by ICBA. Since that time, Subchapter S has helped promote the viability and independence of thousands of community banks. Because they are limited to no more than 100 shareholders, the expiration of Section 199A would disproportionately harm smaller banks. In an era of consolidation in the financial services industry, Subchapter S has helped promote a competitive industry to the benefit of consumers, small businesses, and local communities.”
Low Corporate Tax Rate
Th ICBA said it “strongly supports the significant and permanent rate reduction? for American corporations created by the TCJA, which it said has promoted business investment and hiring.
“The majority of community banks are C corporations and pay the corporate rate,” the ICBA stated. “Base broadening measures used to offset the lower corporate rate, some of which are permanent, would amplify the impact of any increase in the corporate rate.”
The bankers’ group added it would “strongly oppose” any effort to raise the tax rate.