The National Association of Federal Credit Unions (NAFCU) last week released a dubious study claiming that taxing credit unions would hurt the economy by reducing GDP and job growth.
The study states that the annual reduction in GDP would equal $14.8 billion per year and 150,000 jobs would be lost per year, if credit unions were taxed. The study contends that this will occur because reduced competition in the financial services industry will result in higher loan rates and lower savings rates, which will depress personal income and reduce spending.
The NAFCU study also said that the taxation of credit unions would actually increase the federal deficit by almost $1 billion per year as federal tax revenues would fall by more than the revenues collected from taxing credit unions. Oh really.
But why should higher loan rates and lower savings rates be the outcome of taxation?
As a financial cooperative, credit unions claim they operate in their members best interest and have a choice regarding the pricing of their products.
I would contend that some, maybe many, credit unions would not change their pricing policy even after being taxed. They would recognize that it is not in their members best interest to raise loan rates and cut to savings rates and would accept a lower return and a slower pace of growth.
I recognize that there are some credit unions that would try to shift a portion of their tax burden onto their members; but I doubt that the full tax could be passed through to the credit union members. However, these credit unions are putting their profits and growth ahead of their members.
In addition, I believe that even after being taxed there would still be intense competition in the financial services industry. Technology is eroding barriers of entry, making the market place for deposits and loans more competitive.
In conclusion, the study grossly exaggerates the economic impact of the taxation of credit unions.
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I have to agree with you on this one - it's a sad assumption on NAFCU's part to assume all credit unions would change rates and fees to pay for a tax bill when many can still further reduce expenses. That's where many credit unions would focus their attention. Of course that's not an option for everyone. I'm guessing the credit union in the previous post may not be able to reduce expenses too much after that building hit the books!
ReplyDeleteNafcu almost always avoids the preposterous fables of Cuna, but their GDP and tax consequence "study" seems desperate and simply not believeable.
ReplyDeleteAnd on all levels.
Congress won't read it and won't believe it.
The assumptions are robustly Hampel-ish.
Lacks market reality that consumers will force the price of any good as they do now.
Ignores that bank rates are the same or better on many loan and deposit rates and they pay taxes!
Nafcu should withdraw from this campaign for their credibility while they still have some and to avoid becoming Cuna.
"...I doubt that the full tax could be passed through to the credit union members. "
ReplyDeleteHow could it not? A business has the choice of passing costs to its customers or to its owners. But with a credit union, the customers *are* the owners. There is nowhere else to pass the expense.
Pay the fat cat credit union CEO less, and lower their serp.
DeleteShut off the board from going on all those $$$$ conference junkets.
Shut off the management from all those conference junkets.
Shut off Cuna ( cu not accountable) from the dues and lobby money that they have been WASTING. What is the possible justification for standing at the front door of the credit union and throwing member money by the M iLLIONS into the sewer of Cuna and leagues?
Close underperforming branches and reduce unnecessary staff.
If we did a better job running a business our members wouldn't have to pay for it.