Credit Unions Probably Should Not Be Tax Exempt
Northwest Federal Credit Union scored the naming rights to the stadium where the team formerly known as the ‘Skins routinely lose to my Steelers. Routinely, that’s right, because we beat their asses regularly. Get used to it, losers. That fact – Northwest’s naming rights, I mean – has the Wall Street Journal questioning why Credit Unions remain tax exempt:
It seems like an all-around win for Northwest, but as the organization celebrates its new high profile this year, one can’t help but wonder why the federally tax-exempt credit union should have an advantage over smaller tax-paying rivals—including many firms that could never afford to buy the naming rights to an NFL stadium. Also, as Mr. Hansen noted, Northwest isn’t even one of the biggest of the tax-exempt giants. Credit unions have sponsored various sports venues, and also advertise frequently during sports broadcasts.
As Republicans work next year to prevent further tax increases on companies that actually do pay federal taxes, they should not ignore outfits that have managed to avoid them. Scott Hodge raised this issue in the Journal last summer:
Some House Republicans are considering a hike in the corporate income tax rate to help offset the estimated $4.6 trillion cost of extending the individual provisions of the 2017 Tax Cuts and Jobs Act. That would be bad for competitiveness and economic growth. A fairer solution would be to tax business enterprises that masquerade as nonprofit entities.
In 2019, tax-exempt nonprofit organizations generated $3.3 trillion in gross income, managed $8 trillion in assets, and pocketed some $186 billion in net income from sources such as royalties, broadcast rights, insurance reimbursements, ticket sales and membership fees—much of it untaxed. Many nonprofits are true charities, such as food banks and women’s shelters. But most of the largest tax-exempt organizations function like businesses. These include credit unions, hospitals, universities, athletic associations and consulting firms.
I blogged about Navy Federal Credit Union’s exempt status a few months ago. In that post, I noted that the Independent Community Bankers of America – representing rich folks, themselves – thought tax exemption for credit unions an unfair relic of history that should be repealed. A few weeks later, the Credit Union industry geared up in defense. The apparently coordinated campaign suggests that credit unions have been here before. Here is what Jim Nussle, President and CEO of America’s Credit Unions said in a recent letter:
As part of the 2025 tax policy debate, we expect credit union opponents to attack credit unions by distorting facts, making unsupported claims, and urging Congress to remove the credit union tax exemption. That is why it is important to remind Congress why credit unions were granted tax-exempt status, and why nearly 90 years since the passage of the Federal Credit Union Act (FCU Act) the work that credit unions do to serve those left behind by the big banks is more important than ever.
During the depths of the Great Depression, when banks and savings associations were closing across the country, Congress passed the FCU Act to charter credit unions. Credit unions’ not-for-profit cooperative model was intentional to provide safe, affordable financial services products for those left behind by the bankers who decided that serving working class Americans was not profitable and worth their time. The tax-exempt status afforded to credit unions allowed them to serve areas and people that banks would not serve. By every account, this legislation has been an unparalleled success. Data shows the credit union tax status brings $35 billion in annual financial benefits to members and non-members. It is one of the best investments the U.S. government makes with an approximate 1,300 percent annual rate of return. We urge you to keep these credit union differences in mind as our opponents come before you and call for a change to the credit union tax status.
The letter relates a list of community benefits that aren’t attributable to tax exemption and are no doubt provided by banks too. Credit unions are so otherwise identical to banks that they both lobby for the same thing when not talking about tax exemption. Right now, banks are fighting the Consumer Financial Protection Bureau and so too are credit unions. They are both on the same side and there isn’t a substantive difference between them.
darryll k. jones