By Dan Berger
In a letter to leaders of the House Ways and Means Committee, the Independent Community Bankers of America (ICBA) said that while it generally supports the recently introduced tax reform legislation, the federal tax exemption of credit unions remains a point of contention within the bill. Failing to identify exactly why the credit union tax exemption is bad, ICBA's argument is not only weak, but hypocritical.
The ICBA's opposition argument is hypocritical based on the fact that roughly one-third of banks are Subchapter S corporations that pay no corporate income tax. Therefore, it is surprising that ICBA would advocate for getting rid of the credit union tax exemption – which has a proven benefit to the U.S. economy of $16 billion per year.
As credit unions are often close in size to many community banks, we understand and appreciate the role these banks play within the financial marketplace. As of June, there were 1,991 Subchapter S banks; the largest being a $17-billion bank in Missouri.
However, a marked difference between credit unions and banks is credit unions, as not-for-profit institutions, give any money made right back into the hands of members – through reduced fees and higher savings rates.
The industry and NAFCU have effectively proven that credit unions' tax exemption has only strengthened the U.S. economy and helped to create jobs. As leaders in Congress and the Trump administration look to close loopholes and grow the economy through tax reform, ridding credit unions of their tax-exempt status would only run contrary to this goal.
This year, NAFCU released findings from an independent study revealing the positive impact credit unions and their tax exemption have on the U.S. economy. Here are some key takeaways:
- Removing the credit union exemption would, over the next 10 years, cost the federal government $38 billion in lost revenue, reduce GDP by $142 billion and kill off nearly 900,000 jobs.
- U.S. consumers benefit from the presence of credit unions to the tune of $16 billion a year; in the 10 years covered by the study (2006-2015), that added up to $159 billion.
- Over 10 years, total credit union member benefits were estimated to be $56.7 billion. Credit unions' market presence also generated an estimated $102.2 billion in benefits to bank customers.
- Just a 50% reduction in credit unions' market share would cost bank customers an estimated $6.9 billion to $15.7 billion a year in higher loan rates and lower deposit rates.
It is clear credit unions exert a positive economic influence that helps all consumers, spurs economic growth and generates federal tax revenue.
While the ICBA, or any group, may advocate for whatever they wish, let us be clear on the facts: Advocating against the credit union tax exemption means going against the gain of billions in revenue and for the loss of hundreds of thousands of jobs.
As tax reform moves through the legislative process, NAFCU will continue to ensure all participants in these discussions – the White House, Treasury and congressional leaders – continue to understand the positive impact credit unions have on the economy. Our goal: To ensure preservation of the credit union tax exemption and all the benefits it generates for American consumers.
Dan Berger is president and CEO of NAFCU