The credit union industry has strayed from its original tax-exempt purpose and its tax exemption can no longer be justified, according to an economist at the nonpartisan Tax Foundation, a respected research group in Washington, D.C. “Ending the exemption would make the tax code more efficient and provide lawmakers with revenue that could be used to offset other improvements in the tax code,” Erica York wrote in a Tax Foundation research note today.
York noted that the credit union tax exemption was historically justified by three purposes: serving customers with a common bond and customers with moderate means, as well as providing services difficult to obtain at banks. She cited evidence showing that common bonds have weakened, that credit unions increasingly serve high-income customers and that their services now resemble those offered by banks. “The tax exemption for credit unions is not justifiable under principles of sound tax policy, nor under the rubric that lawmakers have used in the past to evaluate the tax-exempt status of financial institutions,” she concluded.