WASHINGTON (3/1/12)--The Credit Union National Association (CUNA) contacted U.S. Treasury Secretary Timothy Geithner this week to address the Obama administration's corporate tax reform proposal and to emphasize its good policy approach to the federal credit union tax status.
'We appreciate that the proposal does not identify the credit union tax exemption for elimination. We also appreciate the fact that your staff reached out to (CUNA) following the release of the proposal. We urge you to take steps to further clarify the intention of the administration to preserve and support the credit union tax status," wrote CUNA President/CEO Bill Cheney in a Feb. 28 letter.
Cheney noted that in 1917 the U.S. Attorney General--and later the U.S. Congress--granted credit unions an exemption from federal income tax because of their organization Structure: Credit unions are member-owned, not-for-profit financial cooperatives. The exemption, in effect since credit unions' inception in the United States, has been reaffirmed many times, including in 1935, 1936, 1937, 1951 and 1998.
The administration has noted its new tax reform proposal starts from the presumption that reform should eliminate all tax expenditures for specific industries, with the few exceptions that are critical to broader growth or fairness.
Cheney wrote that it is entirely consistent with the administration's goals to continue the credit union tax status, and would be a disservice to the American public to discontinue it.
"(W)e believe that each component of corporate tax reform should be evaluated not only on the basis of the revenue it may bring to the government – which would be relatively small in the case of credit union taxation – but also on the basis of the costs in terms of lost benefits to the economy, the country, consumers and small businesses," the CUNA leader wrote.
"If taxed, a very significant number of larger credit unions are expected to convert to banks and an equally significant number of smaller credit unions would simply liquidate," therefore reducing consumer access to credit unions and their benefits, Cheney said.
He added, "The remaining credit unions would have to pass the burden of taxation through to their members because they are wholly owned cooperatives, increasing the cost of accessing mainstream financial services."
Cheney underscored that it is not only credit union members--94 million working-class Americans--that benefit from credit unions generally higher savings rates and lower loan rates: "Even those consumers and small businesses that do not belong to a credit union benefit from the credit union tax exemption because the presence of credit unions in a market motivates banks to keep their rates and fees competitive."
"Taxing credit unions would amount to a gift of tens of millions of customers to the for-profit banking industry at a time when the public is exceptionally dissatisfied with that industry and actively pursuing alternatives," CUNA wrote.