Letter to Treasury Sec Notes Disappointment Over Tax Report

December 26, 2007

FOR IMMEDIATE RELEASE
Contact: Patrick Keefe -- (202) 508-6765 pkeefe@cuna.com

Noting disappointment that credit union concerns were not addressed in a revised white paper on tax reform issues, CUNA has asked Treasury Secretary Henry Paulson, again, for an opportunity to discuss the importance of preserving the credit union tax exemption.

In a letter to Paulson, CUNA pointed out that Treasury’s comments in the “Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century,” issued last week as a revised version of a document released last summer, had addressed concerns of other parties – but not those of credit unions.

Specifically, CUNA noted that, like the previous report, last week’s document focused on repealing various business tax breaks in the federal code, listing the credit union tax exemption as one of the targets.

“As we pointed out in our previous letter (from last summer), such a listing wholly contradicts the 2004 letter to CUNA from President Bush in which he stated, ‘I support strongly the tax-exempt status of credit unions, and will continue to highlight the important contributions that credit unions make to our financial system.’”

CUNA also pointed out that the Dec. 20 report does not address why some entities mentioned in the summer document —such as state and municipal governments—have been removed from the list of tax preferences in this draft, while credit unions have not been removed. Further, CUNA stated that those entities that have been removed have a greater impact on the tax system than the credit union tax exemption can ever have.

“Investors do not have the ability to invest in credit unions in order to gain a tax advantage,” CUNA wrote. “In contrast, state and municipal governments do issue tax-exempt bonds that attract investors in high-tax brackets precisely because of the resulting tax benefits of state and municipal bond investments vis-à-vis non-tax-favored investments.

“Credit unions should be eliminated from this report because the credit union tax exemption plays little role in investment decisions, whereas the tax-exempt entities eliminated from the December 20, 2007 draft of this report do influence investment decisions because of their tax-favored status.”

CUNA closed its message to Paulson by asking, as it did in a letter last summer, for an opportunity to discuss the issues with Paulson.

The complete text of CUNA’s letter to Paulson follows:

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December 21, 2007

The Honorable Henry Paulson
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Paulson:

As you know, we wrote to you, and subsequently met with Assistant Secretary Eric Solomon and his staff, to discuss our concerns about the background paper that the Treasury Department issued last July in connection with the July 26, 2007 conference on Global Competitiveness and Business Tax Reform. Yesterday, the Department issued a somewhat revised version of the paper, entitled “Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century.” We were disappointed to note that, while the concerns of some parties had apparently been addressed, ours had not.

To achieve the goal of reduced corporate income taxes, the paper focuses on repealing various business tax breaks, listing the exemption of credit union income among the preferences. As we pointed out in our previous letter, such a listing wholly contradicts the 2004 letter to CUNA from President Bush in which he stated, “I support strongly the tax-exempt status of credit unions, and will continue to highlight the important contributions that credit unions make to our financial system.”

We have already pointed out the inappropriate contrast between the report’s silence on the substantial benefits of credit unions to consumers, while lauding Subchapter S Corporations and other flow-through entities that are part of what the report calls the “non-corporate sector.” The tax preferences that banks receive through Subchapter S and other tax provisions are comparable to those received by credit unions. Just as importantly, credit unions also belong in the so-called “non-corporate sector” because credit unions are non-stock, not-for-profit cooperatives that operate for the mutual benefit of their members. They do not compete in the marketplace for investment funds with stock companies or other for-profit entities that offer a higher potential return than interest on a savings account.

In addition, the Department’s December 20, 2007 report does not address why some entities mentioned in the July 23, 2007 draft of this report—such as state and municipal governments—have been removed from the list of tax preferences in this draft, while credit unions have not been removed.

Investors do not have the ability to invest in credit unions in order to gain a tax advantage. In contrast, state and municipal governments do issue tax-exempt bonds that attract investors in high-tax brackets precisely because of the resulting tax benefits of state and municipal bond investments vis-à-vis non-tax-favored investments. Credit unions should be eliminated from this report because the credit union tax exemption plays little role in investment decisions, whereas the tax-exempt entities eliminated from the December 20, 2007 draft of this report do influence investment decisions because of their tax-favored status.

We understand that this report does not constitute a proposal by the Treasury Department to repeal the credit union tax exemption, but rather is designed to promote dialogue on the overall subject of corporate tax reform. Nevertheless, the credit union tax exemption is of vital importance to credit unions and millions of Americans who use them to save and borrow at favorable rates and on consumer-friendly terms. The idea of changing the exemption should not be bandied about without careful thought and analysis, especially when other tax preferences have somehow been removed from the list.

Under this Administration, the Treasury has consistently recognized the benefits of credit unions and stated its support for the credit union tax exemption; we urge that position be continued.

I would welcome the opportunity to discuss this with you further.

Sincerely,
Daniel A. Mica
President & CEO

cc: The Honorable Barney Frank, Chairman, House Financial Services
The Honorable Charles Rangel, Chairman, House Ways and Means
Committee

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