Credit Union Journal Daily Briefing | Monday, December 17, 2012
WASHINGTON – As the fight over taxes and tax reform carries into the next Congress, credit union lobbyists are broadly expecting the credit union tax exemption to be part of the debate.
“You can count on it,” said John Magill, the chief lobbyist for CUNA, who worked on Capitol Hill as a senior staffer for one of the tax-writing House Ways and Means Committee’s leading Republicans before going to work for CUNA.
The starting punches have already been thrown, with one lawmaker proposing a bill that would eliminate a wide number of tax breaks—including the credit union tax exemption—and more recently a non-partisan group called the Tax Foundation issuing a study suggesting repeal of the credit union exemption could raise as much as $3 billion a year in new revenues for the federal government.
While the credit union lobby succeeded in getting the repeal removed from the proposed tax reform bill, the credit union tax is clearly on the table for the next Congress. “I think it’s fair to say everything’s on the table,” NAFCU President Fred Becker told the Credit Union Journal on Friday. “The credit union tax exemption has been brought into consideration any time there’s been a discussion of tax reform, and there’s going to be a discussion of tax reform.”
The debate on the credit union exemption will be driven by several catalysts. The biggest is the end to narrow the huge federal budget deficit. That means that any potential for big revenue gains will be weighed and the growing size and income of credit unions makes for an obvious target.
While the Tax Foundation’s estimate of $3.1 billion a year is probably too big, the credit unions’ own estimate of $1.5 billion is probably too small. The American Bankers Association, which has been lobbying for repeal of the tax exemption, estimates a credit union tax could produce somewhere around $2 billion a year. That’s based on several factors, including the soaring credit union net for both last year and this year. Through the first three quarters of 2012 credit unions earned a record $6.2 billion, even with the $900 million they paid to NCUA for the corporate bailout assessment. That puts them on track for a net of close to $9 billion for the year, without the NCUA charge. An average corporate tax rate of 30% could produce $3 billion in taxes. That, of course, doesn’t take into consideration the tax avoidance or tax reduction activities credit unions would undertake to reduce their taxes.
The most persuasive argument against repeal may be the ultimate effect it would have on the credit union movement at a time when it is thriving as never before. A tax on earnings would cut directly into the only way credit unions have of building capital—by retained earnings, he noted. “In my view, if you tax credit unions there’s not going to be any credit unions left,” said Becker.