Thursday, June 20, 2013

Taxed Twice?

Some large credit unions are making outrageous statements about how taxation may impact their members.

One of the more outlandish comments came from Pennsylvania State Employees Credit Union. In encouraging their members to write Congress, the $4.1 billion credit union states:

"We support the idea of all taxpayers paying their fair share. The CU taxation issue, however, is not fair. As a member-owner of this credit union, the credit union's money is your money, which you've already been taxed on. If PSECU gets taxed, your money is getting taxed twice.(emphasis added)"

This is an absurd statement and shows how desperate some credit unions have become.

This credit union is trying to equate credit union dividend payments to dividends paid by corporations. Nothing is further from the truth.

Corporations pay dividends from income after taxes. Note the words "after taxes."

Dividends paid by credit unions would be treated like any other interest expense. Expenses are deducted from revenues to determine taxable income. In other words, credit union dividends are paid before taxes.

A change in the credit union tax status will not alter this. Therefore, members would not be taxed twice.

10 comments:

  1. Keith, They use the term "Member Owner". Can you explain why CUs use the term member owner. What do the members of a credit union own? This is only a feel good word. No member, in my opinion, can receive anything of value unless the CU liquidates and only IF any funds are left over (capital). And if they are, they would be distribute it in a fair way to the depositors. Is this true?

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  2. The members have a claim on the capital (net worth), if the credit union liquidates and there is any capital leftover. The capital would be distributed on a pro rata basis.

    The only other thing they own is the right to vote.

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  3. The only ones who are desperate to keep the tax exemption are the trade associations and trade papers who know if it goes away, the feeding at the trough will eventually be over. The credit unions afraid of taxation are afraid of competing or simply haven't looked at it close enough to know that it's not the end of their ability to compete, it's the beginning. We studied it. We're not worried.
    Cuna?
    Cuna is worried. They got nothing.

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  4. If credit unions are fully taxed, then credit unions should receive the same powers and authorities as community banks. Not the half apple banks forced on thrifts in the 1950s.

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  5. It sounds as the Banking world is becoming more left leaning with their bailouts and now they are pushing for higher taxation and more regulation of a specific industry. I bet the executives of banks hate hearing groups like Occupy Wall Street calling for banks and their stockholders to pay more in taxes but they have no problem being their own Occupy Credit Union group.

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  6. "If credit unions are fully taxed, then credit unions should receive the same powers and authorities as community banks. Not the half apple banks forced on thrifts in the 1950s."

    Exactly. But the ABA will never go for this. They want CUs taxed (never mind that 33% of banks don't pay corporate federal tax) but still restricted on investments, capital formulation, field of membership, and business lending.

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  7. The obstacle is the credit union trade associations. They have consistently rejected any trade-off of taxation for expanded powers.

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  8. Yeah, it's completely one-sided. The ABA would love a truly level playing field.

    (And I've got a bridge I'll sell you.)

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  9. Never ceases to amaze and amuse- the pin head logic of credit union trades.
    The post is about absurd and misleading correspondence from a credit union to its members. Within 3 posts, pinheads have turned it into more inaccuracies (occupy wasn't about taxing banks) to the trades aren't in the way on level playing field for credit unions.
    Wake up.
    Congress hasn't given us any relief since 1998.
    Do you really think ABA has anything to do with that?
    OUR trades can't even get MBL relief in a time when small businesses need credit.
    Always amusing to hear a pinhead (all knowing) proclaim that we will get a level playing field for the tax trade off.
    We will have NO say.
    But to whine to our members about paying taxes?
    Not my credit union. We will not bother our members with that.

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  10. So Keith... let me ask you... I have heard many times from banking advocates that they want a level playing field against credit unions. I agree. I am fine with Credit Unions losing their tax exempt status. If that happens, we need to truly level the playing field. Would you also support dropping the inordinately high capital requirements that Credit Unions have to maintain (much higher than banks)? Would you allow the credit unions access to secondary capital for expansion? Would you allow credit unions to invest excess capital in riskier instruments (like banks can)? Would you remove any business lending cap so credit unions can loan as much as they want to businesses? Would you allow credit unions to operate any place that they wish and allow for unfettered expansion? The only tax that credit unions are exempt from is corporate income tax. Banks are able to shelter from paying this tax by taking out loans. Loan interest is paid before taxes are. Would you allow credit unions to now take out loans as a hedge against corporate income tax?

    Do you really want a level playing field? I certainly do.

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