Tax Reform Should Put Consumers First — Not Banks


As tax reform picks up speed in Congress, special-interest groups are storming Capitol Hill to ensure that they get favorable tax treatment. Fortunately, some groups — like credit unions — are looking out for the interests of hard-working Americans in this tax reform debate.

For years, big banks have been trying to saddle their non-profit credit-union competitors with new taxes. They see a congressional tax reform push as their best chance to sneak such taxes in.

Consumers should hope that the big banks don’t succeed. New taxes on credit unions would pick the pockets not just of their 96 million predominantly middle-class customers — but those of all Americans, by reducing competition in the financial services sector. Credit unions and banks offer many of the same services — like checking accounts, savings accounts, and home mortgages. But they couldn’t be more different in philosophy and structure.

As non-profit financial cooperatives, credit unions exist solely to benefit their member-owners. They do so by charging low or no fees and offering higher interest rates on savings and lower rates on loans. They’ve advanced that mission since the 1930s, when Congress authorized their creation and granted them non-profit status.

And while credit unions are exempt from federal and state income tax, they do still pay property, sales, and payroll taxes. Banks, in contrast, are obligated to maximize profits for their shareholders. And profitable they are, with some of the highest margins of any industry. Sometimes they generate those profits on the backs of their customers — by not offering them the best deal.

Today, roughly 40 percent of Americans belong to credit unions. They’ve proven especially valuable for middle-class families, small-business owners, low-income seniors, and others looking to avoid the fees that have proliferated at banks.

The majority of credit unions don’t have minimum balance requirements. Nearly three-quarters of credit unions offer free checking, compared to just 39 percent of banks. Competitive pressure from credit unions has no doubt forced many banks to rethink their fees — or eliminate them altogether.

Credit unions also best banks on interest rates. The average rate for a one-year certificate of deposit at a credit union, for example, is 50 percent higher than that offered by the average bank.

Thanks to these more favorable rates, credit-union members realized between $4.3 billion and $8 billion in economic benefits per year between 2005 and 2011. And by moderating the pricing behavior of banks, credit unions delivered $10 billion annually in benefits to all consumers.

But those benefits would vanish if credit unions were to lose their non-profit status — and be forced to pay federal income taxes. They’d essentially become for-profit banks. Fees and interest rates would go up for all consumers — not just those at credit unions.

A credit-union tax would also generate miniscule levels of revenue. Although 96 million Americans belong to credit unions, they hold just 6 percent of all financial assets in the United States.

In fact, scrapping the credit-union tax exemption would barely generate $0.5 billion in revenue in 2013, according to an analysis by Congress’ Joint Committee on Taxation. This represents just 0.008 percent of the projected federal budget deficit for 2013.

Yet the economic impact of such taxes would be disastrous. For every dollar in new credit union taxes, the government wipes out ten dollars in member benefits.

The federal tax code certainly merits reform. But lawmakers must ensure that they don’t unwittingly line the pockets of the banking industry at the expense of average Americans. Slapping credit unions with new taxes would do just that. It’s time to ensure that doesn’t happen.

Patricia Wesenberg is the Chairman of the Credit Union National Association and President and CEO of Central City Credit Union in Marshfield, Wisconsin.

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