Monday, May 13, 2013

Does the Tax Subsidy Get Passed Through to Members?

A 2005 study by the Tax Foundation concluded that very little of the benefits from the credit union tax exemption was passed through to the members in the form of lower loan rates or higher savings rates. Most of the tax benefit was retained by credit unions, which went either towards increasing the size of credit unions or to higher labor costs.

The study found:

"Of the 50 basis points in subsidy that the tax exemption provides, at least 33 basis points accrue to owners in the form of larger equity and larger assets. Approximately 6 basis points may accrue to credit union borrowers through lower interest rates, and not more than 11 basis points are absorbed by higher labor costs. There is little or no effect on deposit rates or other costs."

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6 comments:

  1. AnonymousMay 13, 2013 at 7:13 AM

    Haven't seen this before.
    Is there a link?

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  2. Keith LeggettMay 13, 2013 at 7:28 AM

    http://taxfoundation.org/article/competitive-advantage-study-federal-tax-exemption-credit-unions

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  3. Susan RalstonMay 13, 2013 at 9:07 AM

    I think this is a great article. It seems any other non-profit (though credit unions are supposed to be not-for-profit)have some level of accountability to the IRS by being required to complete a 990. On top of not sharing their tax exemption benefits with their members, they aren't even accountable to anyone for how they spend it.

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  4. AnonymousMay 13, 2013 at 12:07 PM

    Doesn't this mean that banks have nothing to worry about? The argument is that credit union's tax advantage allows them to price better.

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  5. AnonymousMay 13, 2013 at 1:38 PM

    What about the study "Banks and Credit Unions: Keeping the Playing Field Level" by Consumer Action that stated banks have between a 20 and 75 basis point tax advantage over credit unions? Even when the credit unions small tax advantages are considered?

    Let us compare the federal corporate tax exemption of Subchapter S banks vs. that same exemption of credit unions.

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  6. AnonymousMay 21, 2013 at 7:38 AM

    Your premise seems to be supported by what the con-artists at Arizona Federal CU are doing. They are serving far fewer members from far fewer locations yet the huge growth in fee income and salaries are lining the pockets of employees, especially management. When you compare the fee income and salary growth to declines in membership numbers and total assets, it becomes apparent who is benefitting, or attempting to benefit from the money grab. If members woke up to what is happening, they would want to stop the looting of the credit union from the stewards who should be protecting the members.

    http://arizonafederalcreditunionmembers.wordpress.com/2013/04/08/arizona-federal-you-dont-shrink-your-way-to-greatness-click-on-folder-icon-in-lower-right-to-expand-file/

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