Credit unions’ privileged status as tax-exempt nonprofit organizations may have filled a market need when Congress created the exemption roughly 90 years ago, but there is no longer a justification to subsidize the institutions, according to new research published by the Tax Foundation. The white paper by foundation President Emeritus Scott Hodge notes that while the number of credit unions has declined by 30% over the past decade, the amount of credit union assets has more than doubled, from $1.02 trillion to $2.17 trillion. The increase is in part because while credit unions are supposed to serve customers of modest means, studies have shown they increasingly serve upper-income families while serving a smaller share of low-income customers than banks, Hodge writes.
Credit unions benefit from both a tax subsidy and a nonprofit subsidy, Hodge writes. The tax subsidy is roughly $3 billion annually, but studies find the combined subsidy is many times the tax subsidy, as much as $21 billion annually. Credit unions are now competing so successfully against banks that they are buying banks to further expand their membership and services, he adds.
“Fairness, equity and public finance demand that credit unions be put on the same tax footing as the commercial banks they compete with,” Hodge writes. “Considering the country’s $34 trillion national debt, subsidizing credit unions is a luxury taxpayers can no longer afford.”