GAO Report Frames Credit Union Tax Debate

April 16, 2013 at 8:21 am 3 comments

A recent report released by the Government Accountability Office (GAO) underscores just how tenuous the credit union tax exemption may be.  The report, combined with the Obama Administration’s description of the credit union tax exemption as a tax expenditure that costs the American taxpayer $9.5 billion over four years, demonstrates why the tax debate, if it ever does get going in earnest, is so perilous to the industry.

The worst case scenario has always been that the credit union tax exemption gets swept into the vortex of a larger tax reform package.  Like I have said before, credit unions would never lose an up or down vote on the importance of their not-for-profit status but they are potentially vulnerable to inclusion in a larger compromise package of so-called tax reforms.  In some respects, this is already happening.  For example, the fact that the credit union tax exemption is now being described as government spending underscores that credit unions are vulnerable to being included in a larger debate on the need to overhaul corporate taxes.  Simply put, very few congressional Republicans will come out in favor of tax increases, but they are in favor of cutting loop holes even if the effect is the same.

According to the GAO, the credit union tax exemption is part of a category of 24 tax expenditures with only estimated corporate revenue losses.  In other words, while there are many more than 24 exemptions for corporations, according to the GAO, only 24 benefit corporations exclusively.  The GAO estimates that the credit union exemption cost the public fisc $1.1 billion annually.  The expenditure by itself is peanuts compared to the combined estimate of the entire category, which is about $59 billion.  Interestingly enough, the single biggest culprit in the GAO’s category of 24 is deferral of income from controlled foreign corporations.  One would hope that Congress would be willing and able to make a common sense distinction between major corporations hiding money overseas to keep it out of the hands of the federal government and cooperatives dedicated to helping people and providing competition to commercial banks, but based on what I’ve seen in Congress lately, you can’t be too sure.

The GAO report is also noteworthy because it highlights the fact that credit unions, unlike other depository institutions that have long since lost their tax exempt status, have been allowed to maintain their exemption because of their unique cooperative, not-for-profit structure and their commitment to people of modest means.  You don’t have to be Nostradamus to see where this debate is headed.  Be ready to explain to Congress that not all tax exemptions are evil and that the need for credit unions is as important today as it was when the exemption was first granted.  Along the way we may want to point out that the credit union tax exemption is not only for credit unions but the tens of millions of Americans who have sought credit unions out for better rates, better service and maybe even to work in cooperation with their neighbor or colleague.

Entry filed under: Advocacy, General, Political. Tags: , , , .

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3 Comments Add your own

  • 1. Ellen Drollette  |  April 16, 2013 at 8:58 am

    I do worry that some of the biggest credit unions are starting to act too much like a bank. I can only hope that if they tax credit unions, they find a way to exclude the little credit unions (we are only 5 mil). There is no way we could survive this added expense.

    Reply
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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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