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ACI's Pociask warns of peril in banks' call for CU taxation in Hill blog post
WASHINGTON (2/11/14)--State lawmakers should not heed bank calls to eliminate the nonprofit status of credit unions, American Consumer Institute Center for Citizen Research President Steve Pociask said in a blog post published in The Hill this week.

Pociask in his post noted that some banks are asking state legislators to pass resolutions calling on the U.S. Congress to eliminate the nonprofit status of credit unions, "effectively imposing new taxes on the banks' smallest of rivals." Essentially, Pociask said, "'too big to fail' banks--those first to get in line for federal help and bailouts--are coming to a statehouse near you and pleading for government help to raise the cost of their ankle biter competitors." This ask, he said, "smacks of protectionism."

"If banks feel that credit unions have a competitive advantage, why don't banks simply become nonprofits or operate in a break-even fashion to avoid taxation? Furthermore, if banks chose to operate as a Subchapter S corporation, its investors and stockholders could avoid paying dividend taxes. The truth is that banks have chosen not to return its earnings to its customers, and that is its prerogative, but that activity is taxable by choice," he said.

Pociask contrasted credit unions' member-owned nonprofit structure with that of banks, which have private investors and stockholders, can make lavish payments to board members, pay dividends to stockholders and make profits that are taxable.

"Since credit unions plow its retained earnings back into its member-owned entities, there really are no real profits to tax. Instead, credit union members have their benefits taxed at their personal income tax rates. If credit unions are taxed upfront, as banks have suggested, the result would be double-taxation of credit union members," he wrote.

Further, taxing credit unions would harm consumers. Eliminating the nonprofit status of credit unions could cost consumers $16 for every $1 of taxes saved, he estimated.

"That would be a really bad deal for consumers, taxpayers and voters," Pociask wrote.

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