Reviewing the justification for the credit union tax exemption would be worthwhile, according to an analyst at the nonpartisan Tax Foundation, a respected research group in Washington, D.C. “Given the change in the financial sector over the last several decades, it would be useful for lawmakers to reexamine the extent to which credit unions currently fulfill their original purpose,” Erica York wrote in an article on the Tax Foundation’s website. “If they have strayed from their intended function and now resemble other taxed financial institutions, their exemption would represent a disparity across similar economic activities.”
York noted that the credit union tax exemption is based on a mission of helping “unbanked, lower-income people”; a restricted customer base united by meaningful customer common bonds; and a business model that avoids high-risk investments and provident financial products “such as small personal loans.” As the American Bankers Association has long documented, many credit unions — especially large, multi-billion-dollar CUs that function like banks — have strayed from these limits. During the 2017 tax reform debate, ABA strongly urged Congress to reconsider the credit union exemption.
