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Be Prepared For Renewed Focus On Exemption

While lawmakers pulled us back from going over the fiscal cliff in January with a last-minute deal to buy more time, Congress and President Obama still must come up with a $1.2-trillion deficit-reduction package by March 1 to avoid sequestration cuts from kicking in.

Other fiscal deadlines follow shortly thereafter with the Continuing Resolution expiring on March 27-that could lead to a government shutdown-and the suspension of the federal debt ceiling expiring on May 19.

The House Ways and Means Committee has already had a hearing on tax treatment of charitable contributions and more such hearings on other tax breaks are sure to come, including from the Senate Finance Committee. Unfortunately, any time tax reform and deficit-reduction is on the table, the credit union federal income tax exemption is a possible target.

As is always the case in such an environment, the bank trade groups are using this as an excuse to reinvigorate some old arguments. In late January, the bankers wrote Congress yet again to challenge our efforts to raise the member business lending cap and to question credit unions' tax-exempt status. Bankers-who last year reported the best earnings results in six years-continue to claim that credit unions have an unfair advantage.

 

Exemption Does Not Cost

Anticipating a taxation debate in 2013, last year we conducted a landmark study on the economic benefits of the credit union federal income tax exemption. (The last such study was over a decade old). A copy of the study can be obtained at: www.nafcu.org/cutaxexemption.

Our study shows that the competition credit unions provide keeps interest rates on loans and credit cards down. Without credit unions, all Americans-regardless of credit union membership-would face higher interest rates.

The study also shows that the loss of the credit union tax exemption would actually cost the federal government $1.5 billion in lost tax revenue, $148 billion in gross domestic product and 1.5 million in lost jobs over the next decade. Without a doubt, taxing credit unions does not make economic or budgetary sense.

Fortunately, we recently gained a valuable ally to advocate for the credit union tax exemption in The Military Coalition. On Jan. 3, when Congress officially reconvened, the 5.5-million-member consortium of uniformed services and veterans associations delivered to lawmakers a message of "unequivocal support" for credit unions. They underscored the fact that the 95 million American credit union member-owners, including millions of service members and their families, would face a greater financial burden due to the loss of competitive lending products if the credit union federal income tax exemption were eliminated.

 

'Detriment' To Armed Forces

The Military Coalition further noted that any change in the federal tax exemption would "be to the detriment of our armed forces members and families and, in the long term, to military readiness."

It should also be noted that, as sought by NAFCU, the Joint Committee on Taxation recently reduced the estimated "cost" of the credit union federal income tax exemption to $500 million in their latest report. It also cut by about one-third, to $3.9 billion, the estimated cost of the exemption from 2013-2017. This affirms our view that the value of the exemption to our nation far exceeds its cost.

In this contentious climate, credit unions must make sure that policymakers are well aware of why the exemption exists, the benefits it allows credit unions to provide to all Americans-not just members-and the devastating impact its removal would have on our nation's economy.

Critics argue that credit unions today are no different than banks. However, the defining characteristics of a credit union, no matter what the size, remain the same today as they were in 1934: not-for-profit cooperatives. A credit union's shareholders are its members and each member has one vote, regardless of the amount on deposit, while a bank has stockholders.

 

Credit Unions Do Pay Taxes

Also, it's important to remember that credit unions do pay taxes, among them payroll and property taxes. Share dividends paid to credit union members are also taxed at the individual rate.

Clearly, this is a war of many battles, but so far, we have prevailed. You must remain steadfast in continuing to educate your congressional representatives about the value provided by your credit union because of the tax exemption. Enlist your members in the process, too. There is strength in the millions of credit union members we serve. The more engaged we all are, the greater our chances we will remain successful!

Dan Berger is executive vice president of government affairs at NAFCU in Arlington, Va. He may be reached at dberger@nafcu.org.

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