Wednesday, November 24, 2010

Debt Reduction Task Force Recommends Eliminating CU Tax Exemption

The Washington, D.C.-based Bipartisan Policy Center's Debt Reduction Task Force last week released a 140-page report outlining a plan to cut $6 trillion from the federal debt by 2020. The task force, co-chaired by former Sen. Peter Domenici (R-N.M.) and Alice Rivlin, former vice chair of the Federal Reserve Board, recommended eliminating a long laundry list of tax expenditures -- including the credit union tax exemption.

The plan, among other things, also includes a one-year payroll tax holiday; a 6.5 percent national sales tax to lower the national debt; a five-year freeze on defense spending; a four-year freeze on nondefense domestic spending; and reductions in farm program spending. The corporate tax rate would be lowered to 27 percent, and individual taxes would have only two rates -- 15 percent and 27 percent.

In recommending either eliminating or scaling back almost all tax expenditures, the Task Force stated that "[w]hile some tax expenditures promote important social and economic goals, others have little economic justification."

The Task Force further states:

"Many tax expenditures,moreover, subsidize activities that generate no clear benefits beyond the rewards that private producers would receive in free markets. These tax expenditures misallocate resources by promoting over-investment in tax-favored industries and over-consumption of tax-favored goods and services. Tax expenditures also raise costs of compliance and administration and contribute to the high current levels of non-compliance. Eliminating almost all tax expenditures allows the Task Force plan to raise sufficient revenues with much lower individual and corporate tax rates than in current law."

To view a list of tax expenditures the Task Force recommended retaining, go to Appendix B on page 130 of the report.


  1. Dr. Leggett: The words "credit union" do not appear anywhere in the report. Besides without competition (including the limited competition provided by credit unions), banks would have a monopoly on the retail financial services marketplace and a virtual monopoly on consumer loans. That would be great for the economy. Happy Thanksgiving!

  2. I agree - I read the entire darn thing and could not find any mention of "credit unions".

    One other question. If credit unions are taxed, then is the ABA promoting the elimination of MBL caps, inclusion of subordinated debt and a decrease in net worth to 5% (after all, we should all be on the same page, right?)

  3. Credit unions are not mentioned among the tax expenditures to be retained. It is easier to list what will be retained instead of all the the tax expenditures that will be eliminated.

  4. I ran the "CTRL F" function on the words "credit union" and the search results found nothing.



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