State bankers associations wrote Senate Finance Committee Chairman Orrin Hatch (R - UT) on February 20th that taxpayers should no longer subsidize the nation’s largest credit unions, which effectively operate the same as taxpaying banks.
The letter came after Senator Hatch wrote the National Credit Union Administration last month raising concerns about whether credit union activities align with the purposes of the federal income tax exemption they enjoy.
While the credit union tax exemption was originally created to help institutions meet the credit needs of people of modest means with a common bond, the industry today has stretched the “common bond” requirements to allow credit unions to serve large, multistate regions, the associations said. They also pointed out that the number of credit unions with more than $1 billion in assets has more than doubled in the past decade, and that this group of almost 300 credit unions represents just 5 percent of the industry but enjoys 75 percent of the tax subsidy.
Noting that Congress missed a critical opportunity to address the treatment of credit unions in the new tax reform law, they urged Hatch -- the top tax policymaker in the Senate -- to revisit the tax exemption this year.
The letter stated that the tax code should not be used to pick winners and losers among similarly situated businesses. “There is no reason why the largest credit unions, which act and look just like the taxpaying banks they compete with, should be completely free of income taxation,” the associations wrote. “This creates a market distortion where the tax code effectively subsidizes one financial services entity (the largest credit unions) over another (the smaller community bank).”
Read the letter.
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