Sen. Tom Coburn, who is thankfully on his way out the door to retire at the end of the month, recommended eliminating the “unexplainable” credit union tax exemption in a new report on the tax code released on Tuesday, according to the Credit Union Times, a trade industry publication for the member-owned banking industry.
Coburn, a member of the Senate Banking Committee, argued the current credit union model is not consistent with the original justification of the special tax treatment for credit unions in a report titled, “Tax Decoder.”
“Congress should eliminate the tax-exempt status of credit unions as part of comprehensive tax reform, a process by which members of credit unions and non-members alike will undoubtedly benefit from the bounty of enhanced economic growth.”
Coburn argued the current credit union model is not consistent with the original justification of the special tax treatment for credit unions, calling itcredit unions’ tax-exempt status a skewed policy that “benefits a select few at the expense of the many.” He claims the tax-exempt status cost taxpayers an estimated $2.1 billion in FY2014 and $11.9 billion in FY2014-2018 — although taxpayers are the ones who typically benefit from their credit unions’ policies.
Coburn used information from the Koch-funded Tax Foundation to state his case, explaining that wealth held by credit unions is too great:
“Supporters of the tax exemption claim that despite deregulation, credit unions are still unique depository institutions. However, the Government Accountability Office notes that ‘as the credit union industry has evolved, the historical distinction between credit unions and other depository institutions has continued to blur,’” Coburn’s report said.
“Moreover, consolidation in the industry has resulted in the more than 100-fold increase of credit unions with more than $1 billion in assets over the last 20 years. As of 2012, more than half of the total assets held by the industry are controlled by fewer than 200 credit unions (or 2% of all credit unions),” the report also said.
Coburn, who leaves Congress at the end of the year, argued the current credit union model is not consistent with the original justification of the special tax treatment for credit unions.
“Instead, ‘the principal justification for the tax exemption would seem to be that it already exists and, therefore, removing it could adversely impact thousands of institutions and their customers,’ as noted by the Tax Foundation.”
CUNA President/CEO Jim Nussle said Coburn is wrong, and hinted at the fact that he may not quite understand the credit union’s membership-controlled model:
“Our tax status is based on the structure of credit unions – as not-for-profit, member-owned, volunteer-led financial institutions. It is not based on the products or services a credit union offers. Sen. Coburn’s report also reveals little understanding of how credit unions differ from banks. At a bank, the beneficiaries of the bank’s services are the shareholders – who expect as much profit as possible be returned to them from bank customers,” Nussle said.
“At a credit union, the member-owners are the beneficiaries. Because of the cooperative ownership structure, any excess earnings of a credit union are redirected back to members in the form of lower loan interest rates and higher savings yields,” he added.
A prime example of how credit unions serve their communities would be Navy Federal Credit Union, the largest credit union in the United States, which boasts over 5 million members. Their field of membership includes all active duty, retired, and reserve Army, Navy, Marine Corps, and Air Force personnel, as well as civilian personnel within the Department of Defense.
Credit unions are able to pass on important cost savings to their member base, and they are often able to offer lower rates for loan financing and low-fee financial products. Millions of people rely on the safety and security of credit unions to handle their finances.
NAFCU President/CEO Dan Bergeralso fired off a response to Coburn that defended the exemption, explaining, “Altering the tax status of credit unions would have a devastating impact not only on credit union members across the country, but also on consumers and small businesses in general,” Berger wrote, citing an independent study commissioned by NAFCU. “Eliminating the credit union tax exemption would result in the loss of 150,000 jobs a year, a shrinking of the GDP, and a net loss of revenue to the federal government.”
Luckily, Coburn’s recommendations are not likely to generate any action this year and it’s doubtful they will spur any new action by the next Congressional session. It’s awfully convenient that Koch think tanks like the “Tax Foundation” never seem to examine — or try to eliminate — their own nonprofit tax exemptions, isn’t it?