Thursday, July 10, 2014

Should the Wealthy Get Taxpayer Subsidized Financial Services?

Gina Ragusa, writing a column on Credit Union Online, asked the following question: "Should the Wealthy Be Denied Credit Union Membership?"

The more relevant policy question is should the wealthy get taxpayer subsidized financial services?

Credit unions are tax exempt because they are meant to meet the financial needs of consumers, especially individuals of modest means. This is the public policy rationale for the credit union tax exemption and was reaffirmed by Congress in 1998.

Unfortunately, this tax exemption is poorly targeted. Both people of means and of modest means are recipients of this taxpayer subsidy with the largest portion of the tax exemption accruing to wealthier credit union members.

This would indicate that credit unions are a poor delivery vehicle of this taxpayer subsidy, thus undermining the policy rationale for the tax exemption.

Policymakers would get more bang for the buck by repealing the credit union tax exemption and directly targeting the tax subsidy at people of modest means.

If the tax exemption was repealed, there would not be any reason to debate whether the wealthy should be credit union members. No one would care.


  1. Any chance you can provide some proof to back up your statement, "the largest portion of the tax exemption accruing to wealthier credit union members"? I'd love to hear your rational. Also, I'd like to know what you consider wealthy.

  2. GAO in 2006 estimated that 49 percent of credit union members were of upper-income, Upper income is defined as earning at least 120 percent of the national median household income.

    1. You’re using an outdated, pre-recession GAO estimate from 2006 to support your assertion that the largest portion of the tax exemption is accruing to WEALTHIER credit union members? Ok, I’ll play along. In 2006, the national median household income was around $48K. So using your definition $57,600 is wealthy. I’m not sure where you live, but I’m fairly confident the majority of people with an annual household income of $58K don’t consider themselves wealthy. In fact, I’m willing to bet that a lot of people with that household income living in New York, California, Hawaii, New Jersey, Virginia, or Washington DC struggle financially; yet according to you, their all wealthy and undeserving of having access to a credit union. Do you even know what percentage of credit union assets those "wealthy" members represent? Also, how are you allocating the tax exemption portion to the individual members? You have a knack for stating your opinion as though it’s fact, and seldom have any factual data to back it up.

    2. Median income currently is around $51,000, therefore upper income per your comments is $61,000 - spin as you will but a weak argument using your numbers.

  3. Funny how income could be higher when many credit unions are employer-group based. And the ABA is fighting them from adding associations to allow more diversified membership.

  4. All people are doing is joining a co-op Keith - you're making entirely too big a deal of it all. Should we discriminate based on your income / success / how hard you work / or how you do a great job managing your assets and living within your means.

  5. I have no problem with people joining a coop. They just should not get taxpayer subsidized financial services.



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