CU Tax Fight Lurks

Credit Union Journal Daily Briefing | Wednesday, May 16, 2012 | By Ed Roberts 

WASHINGTON – The credit union lobby went on defense this morning against banks and told a Congressional panel reviewing tax exempt organizations that lost revenues from tax exempt Subchapter S banks now exceeds all potential revenues from the credit union tax exemption.

The new defense on the bank exemption-coming in response to new complaints by the bankers--is high-risk strategy for credit unions because it could invite Congress to bring both tax exemptions under greater scrutiny, according to one Capitol Hill lobbyist. “This could backfire if both sides persist,” said the lobbyist this morning.

In correspondence to the House’s tax-writing Ways and Means Committee, NAFCU said a major exemption for closely held Subchapter S banks now exceeds the size of the exemption for all credit union. “There are a total of 2,377 Subchapter S banks that avoid federal income taxes today and that number is expected to grow with Congress recently loosening Subchapter S requirements,” NAFCU’s chief lobbyist Dan Berger said in a letter to Congressional leaders. The lost tax revenues for those 2,377 banks amounts to about $2 billion, far exceeding the estimated $1.3 billion value of the credit union exemption, according to the credit union lobbyist.

“Perhaps the real issue should be the unfair advantage over credit unions that our nation’s banks get with their Subchapter S tax breaks and multiple bailouts,” said NAFCU’s Berger.

But the bankers have a much bigger estimate for the credit union tax exemption, as much as $31 billion over ten years, or $3 billion a year, according to the Independent Community Bankers of America. “The credit union tax exemption comes at a significant cost to taxpayers,” said ICBA President Camden Fine in his own letter to Congressional leaders.

The latent tax fight comes as the community bankers are leading the fight against the credit union business loan hike, which would come at their expense. ICBA’s Fine noted in his letter the increase in the MBL limit “would displace lending currently done by taxpaying community banks, it would significantly reduce tax revenues and widen the budget deficit."