WASHINGTON–A coalition of credit union organizations has sent a joint letter to Congress in support of the credit union tax exemption.

As the CU Daily has been regularly reporting, credit unions are especially  concerned this year that Congress might revoke the tax exemption as it seeks ways to pay for expiring provisions of the 2017 tax cuts, which President Trump wants to see renewed.

Sending the letter to Congress were the Defense Credit Union Council (DCUC), America’s Credit Unions (ACU), Credit Union Executive Society (CUES), National Association of Credit Union Chairs (NACUC), National Credit Union Management Association (NCUMA), Inclusiv, TruStage, Earnest Consulting Group (ECG), Callahan and Associates, National Council of Firefighter Credit Unions (NCOFCU), Metropolitan Area Credit Union Management Association (MACUMA), Association of Credit Union Audit and Risk Professionals (ACUARP), and the National  Council of Postal Credit Unions (NCPCU). 

The letter states that the absence of stockholders demanding profits results in $37 billion in annual direct and indirect financial benefits to credit union members, and cites a study that found the average CU member saves about $220 per year in fees and through better rates compared to using a bank. 

The credit union groups also point out that the total membership of approximately 140 million Americans represents about 40% of the U.S. population. 

About Banks

“[T]he vast majority of a bank’s profits flow to a relatively small group of investors. Studies show banks devote only around 1% of their profits to community reinvestment, with the other 99% going to shareholders and executive compensation,” the letter reads. “Credit unions invert that model – by charter, we reinvest essentially everything into serving our members.

“The banking industry holds over $24 trillion in assets (nearly ten times the assets of all credit unions combined) and earned record profits in recent years,” the letter continues. “Banks also benefit from numerous tax breaks and subsidies that are not available to credit unions…For example, over 2,000 banks – including some large ones – use a special Subchapter S tax election to avoid corporate income taxes entirely, saving those banks an estimated $1.8 billion in taxes in 2022 alone.”

Windfall for Banks

The letter says the 2017 Tax Cuts and Jobs Act gave banks with a massive windfall by slashing corporate tax rates:

“[B]anks collectively enjoyed a $28.8 billion annual tax cut in 2017, amounting to an estimated $447 billion in tax breaks over 10 years. In fact, the federal revenue “cost” of the entire credit union tax exemption is tiny by comparison – bank tax cuts and loopholes have a budgetary impact roughly 16 times greater than the credit union tax exemption,” the letter tells Congress. “It is galling that some in the banking industry, after receiving huge tax cuts and even taxpayer-funded bailouts in the past, are now lobbying to raise taxes on credit unions.”

Much at Stake

According to the letter, he potential consequences of removing the tax exemption include:

• Higher costs for members: “Credit unions would be forced to raise fees and loan rates, reducing financial access for middle- and lower-income families.”
• Reduced service to underserved areas: “Smaller credit unions and those serving rural or low-income populations may be forced to cut services or shut down completely, and undercut any efforts for new or De Novo credit unions looking to serve areas in need.”
• Market consolidation: “A weakened credit union sector could lead to less competition and higher prices for all consumers, even bank customers.”

The ROI

According to the coalition of CU organizations, the federal government forgoes roughly $4 billion annually by not taxing credit unions, but says credit unions and their members still contribute more than $36 billion in other taxes (payroll, property, state/local) each year—all while returning that $4 billion in tax savings back to members in the form of better financial pricing, services, and support.

‘Working Hard’

“We are working hard to ensure policymakers understand what is at stake. Credit unions’ tax exemption is not about protecting a financial institution – it’s about protecting the financial well-being of Americans who rely on credit unions,” the letter states. “It enables us to offer affordable loans to a family buying their first home, to provide counseling to the senior on a fixed income, to approve a micro-loan for a startup business, and to maintain branches in communities that others have abandoned. If that ability is threatened, it is everyday people and local economies that will pay the price.”