As millions of Americans filed federal income taxes today, American Bankers Association President and CEO Rob Nichols wrote to Congress urging lawmakers to end the credit union tax exemption. With the 10-year cost estimated by the Congressional Budget Office at $27 billion, the exemption is one of the single largest corporate tax loopholes in the U.S.
Nichols argued that the line between banks and credit unions has blurred over time, and that the Great Depression-era tax exemption is no longer justifiable for the $1.1 trillion credit union industry, since many credit unions now operate virtually the same way as banks. Furthermore, he wrote, the benefits of tax exemption are rarely ever passed along to consumers; recent research has shown that in most cases, credit unions leverage the tax subsidy to raise employee salaries or expand the size of their institution.
And while credit unions have made the argument that they deserve tax-exempt status because they are customer-owned, Nichols pointed out that other banks with cooperative, customer-owned structures such as mutual savings banks and thrifts have been subject to federal income taxes for decades.
“The status quo is unacceptable,” Nichols wrote. “On this day, when individuals and businesses will settle up with the government for nearly $2 trillion in federal income taxes, it is simply not fair that the entire credit union industry pays nothing. The public policy justification disappeared long ago and taxpayers should no longer subsidize these large aggressive credit unions.”