The 116th Congress has begun, but the seats are barely warmed and bank trade associations are already making their demands. On that list are credit unions, which is not at all surprising. This time, they are making a new argument using bipartisanship as the platform to call out the federal corporate income tax exemption for credit unions. While we appreciate their fervor to defend their industry, the picture painted is quite flawed.
Carrie Hunt is executive vice president of government affairs and general counsel for the National Association of Federally Insured Credit Unions.
Lobbyists continue to harp on what seem like tough conditions for banks but overtly omit a few key facts, such as conveniently leaving out that banks maintain the highest levels of capital ever and still dominate the financial industry. Moreover, they sometimes conflate community banking on Main Street with big banking on Wall Street. This makes no sense.
The fact is that credit unions are nonprofit financial institutions that exist to serve their community members while also strengthening the economy. It seems our bigger counterparts think that only the growth of one kind of financial institution is allowed. If a credit union grows, does it mean banks cannot? Should we not be focusing on the needs of the consumer anyway? The answer is very clear.
An independent study commissioned by National Association of Federally Insured Credit Unions shows that credit unions drive some $16 billion in economic growth each year in the United States. If the tax exemption is eliminated, the country would lose $38 billion in tax revenue, $142 billion in gross domestic product, and some 900,000 jobs over the next decade.
Lobbyists continue to insinuate that the tax exemption gives credit unions an unfair advantage over banks. But there are numerous differences in the way banks and credit unions operate, and these significant differences matter. The most important one is that credit unions direct any income back into their institutions for the benefit of their community members. Moreover, credit unions do that with restrictions and limitations in place.
Keep in mind that about a third of banks enjoy “Subchapter S” status so that they can distribute untaxed profits directly to shareholders. Banks also benefited from the corporate tax cuts. Rather than showcase their dedication to providing consumers with affordable products and working to regain the trust of taxpayers after the recession, big banks boosted shareholder payouts by $30 billion last year. The tax cuts made them richer, yet they still want to control the policies affecting credit unions.
The banking industry is responsible for at least $240 billion in fines since the 2008 financial crisis. But as penalties continue to roll out, it seems banks have not yet learned their lesson. For most companies, $240 billion in expenses would force them straight into bankruptcy. For the banking industry, that is the amount they have shelled out to pay their fines, and they still manage to turn out solid profits. Furthermore, $240 billion is nearly twice the assets of the largest credit union in the United States.
The study mentioned above shows that bank customers reap tangible benefits from the existence of competition from credit unions in the industry. In the decade covered in the study, credit unions had generated $159 billion in economic growth, and credit union member benefits were estimated at more than $56 billion. But a 50 percent reduction in credit union market share would cost bank customers anywhere from $7 billion to $16 billion a year through higher loan rates and lower deposit rates.
While bank lobbyists attempt to discredit the mission of the credit union industry, it is important to keep in mind that anyone promoting the end of the credit union tax exemption is in essence supporting the elimination of billions in economic growth, billions in federal revenue, and hundreds of thousands of jobs. Lawmakers have already answered that question in their conference report many times. The White House and Congress over the years have understood the benefits of the exemption to taxpayers and the economy. Whether the big banks believe it or not, the credit union exemption confers numerous benefits to consumers across the nation.