Legislative Battles Are Gifts That Keeps On Giving For Trade Associations

Forget every bit of advice you've ever given your children or grandchildren-or really anyone-about their career choice. Go back and tell them to erase whatever you told them and/or to drop whatever they are doing and run, don't walk, to become a Washington lobbyist. There doesn't seem to be the remotest chance they'll ever be out of work.

Fifteen years ago credit unions entered 1998 with huge uncertainties about their future. Court rulings had been going against them again and again on the issue of field of membership, and the banking lobby, well aware it was holding nearly all the cards, hinted it might be willing to drop all its litigation over FOM in exchange for one teensy, little thing: surrender of the CU tax exemption.

Now, one glorious congressional victory, thousands if not tens of thousands of Hike the Hills, perhaps as much as $50 million in political donations, and a decade-and-a-half later and the "No. 1" issue for credit unions heading into 2013 is, envelope please: yep, protecting the tax exemption.

Or is it? The credit union tax exemption is the Manti Te'o of issues: no one seems to know what to believe or if this whole thing isn't somebody's idea of a hoax.


Feels Good, But...

Last week in Hawaii, CUNA CEO Bill Cheney (and not the native Mr. Te'o) told the Paragon Group's Volunteer Leadership Institute that credit unions have a "battle on their hands," but that ultimately he "feels good" about where credit unions stand in Congress. Cheney was followed to the podium at the meeting the next day by NCUA Chairman Debbie Matz who said that after the issue of aging membership, her next concern is loss of the tax exemption.

"To me this is the most important legislative issue currently," said Matz. "In my opinion, if credit unions lose their tax exemption credit unions will cease to exist."

While I certainly agree with Ms. Matz' latter point, it's hard to know whom to agree with on how legitimate the potential loss of the tax exemption really is. Just like that 1998 fight when the bankers were looking to take advantage of whatever leverage they had in order to have the exemption revoked, a federal deficit whose numbers are spinning like the price at the pump for a tank of premium have become the gifts that keep on giving for the American Bankers Association. The ABA has been in front of nearly every member of Congress with a message that taxing credit unions would help put a dent in the deficit. Why, it's the American thing to do.

Cheney, who noted last week that the just-concluded 112th Congress finished by passing one-fourth the legislation of Harry Truman's "Do Nothing" Congress, said he doesn't consider the CU tax exemption to be "anybody's loophole."


No 'Juice' Here

"It's not in Washington's words, a 'tax expenditure,'" Cheney told several hundred CU volunteers gathered on the Big Island. "It's a personal tax expenditure. So if you tax credit unions, it's not a corporate tax, you are taxing credit union members-95 million of them. And credit unions serve primarily working families. A tax on credit unions is raising taxes essentially on the middle class."

Yet for all that, Cheney also said one member of Congress told him that when it comes to the CU tax exemption the "juice isn't worth the squeeze." The reason is a squeeze of a different kind, the congressman told Cheney, who quoted that rep as saying, "We all know you have 95 million members, and as soon as you say we're going to raise taxes, you call out the reinforcements; you win."

Cheney said the estimate is that revoking the tax exemption would add $600 million to $1 billion to the treasury every year, although that assumes every CFO in the country won't go to work to show there is no income on which to be taxed.

In the meantime, Cheney said CUNA is already "preparing for the fight," noting the association is "conducting focus groups on the tax exemption so we understand consumer perceptions of the tax exemption. There has never been stronger support than there is today, but there is some education that needs to happen. We can't take it for granted."

Meanwhile, as Credit Union Journal reported Jan. 21, a "study" underwritten by the Oregon Bankers Association, and I trust you'll be astonished at this, claims credit unions are "indistinguishable" from community banks in the Beaver State and that as a result CUs deserve no regulatory or tax advantages. A bill to tax CUs also appeared in the Oregon legislature last week (see story, page 1).

The report, written by frequent CU critic Marvin Umholtz, includes a section detailing the salaries of the CEOs at Oregon CUs as apparently further evidence of the need to revoke the exemption.


If It's Such An Advantage, Well...

Here's what I've never understood: if the differences between CUs and banks are really "indistinguishable" and if the advantages are all on the CU side of the fence, why aren't the banks changing charters and becoming not-for-profit financial co-ops? Seems like a no-brainer.

Of course, if I had brains I would have become a lobbyist for either banks or credit unions. Recession? What recession?

Frank J. Diekmann can be reached at fdiekmann@cujournal.com