Banks’ tax hypocrisy will hurt Main Street, not credit unions

Recently, the Independent Community Bankers of America (ICBA) urged Congress to end what it calls an “unwarranted tax subsidy” for credit unions. The demand is as predictable as it is outrageous. While bankers paint credit unions as freeloaders, they conveniently ignore how banks themselves exploit the tax code to avoid paying taxes. Let’s call this attack what it is: a blatant attempt to eliminate competition by punishing the very institutions that put consumers and communities first. Stripping credit unions of their tax exemption will not help taxpayers or Main Street—it will line banks’ pockets at the expense of working families, small businesses and even our military members.

The banking industry has perfected the art of tax avoidance. ICBA complains that credit unions “avoided” nearly $4 billion in federal income taxes in 2022. But what you will not hear from them is that over 2,000 banks elect Subchapter S tax status, allowing them to pay zero corporate income tax, a loophole that saved those banks an estimated $1.8 billion in 2022 alone. In total, these Subchapter S banks collectively save billions in federal taxes every year. On top of that, banks deftly use tax tricks like accelerated depreciation to write off assets and shrink their tax bills. All of this is perfectly legal—and perfectly hypocritical when the same banks whine about credit unions’ tax status.

This double standard is stunning. Banks enjoy massive tax breaks and even taxpayer bailouts, yet they have the gall to label credit unions’ modest tax exemption as unfair. Let’s not forget: the banking industry gladly took hundreds of billions in federal bailouts during crises. The notion that banks are the underdog victims of credit unions’ tax treatment is both misleading and laughable. Subchapter S banks pocket huge tax savings and funnel those dollars to shareholders, not local communities. In fact, banks devote only about 1% of their profits to community reinvestment, directing the other 99% to shareholder dividends and executive bonuses. So much for supporting Main Street.

Credit unions, by contrast, are not-for-profit cooperatives owned by their members. Their tax-exempt status is not a “loophole”—it is a reflection of their community-focused mission and structure. Unlike banks, credit unions do not answer to Wall Street investors or pay out fat dividends to stockholders. Every dollar of surplus gets reinvested into serving members: better loan rates, lower fees, financial education, and local community programs. This is exactly why Congress granted credit unions a tax exemption in the first place—to recognize their unique role in serving “people of small means” rather than maximizing profit.

The economic benefits of this member-centric model are huge. By returning profits to members in the form of better deals, credit unions save consumers at least $12 billion every year through lower interest rates and fees. One federal report found the average credit union member saves about $220 per year in fees alone compared to if they banked elsewhere. It’s no wonder 140 million Americans—nearly 40% of the population—choose to bank with a credit union. Every one of those members, and even customers of other banks, benefit from credit unions’ presence. A recent study shows credit unions’ competitive pressure forces banks to offer better rates; if credit unions’ market share were cut in half, bank customers would pay up to $9.9 billion more per year in higher loan rates and lower deposit yields. In short, credit unions keep everyone’s costs down.

Crucially, credit unions use their resources to lift up Main Street businesses and military families in ways banks often won’t. In 2022 alone, U.S. credit unions poured over $20 billion into community-focused initiatives such as affordable housing, small business loans, and financial literacy programs. These investments target underserved areas that big banks routinely ignore or abandon. For example, credit unions make 20% more small-dollar loans (under $5,000) than banks, often providing a lifeline to local entrepreneurs and working-class borrowers who might otherwise fall prey to payday lenders.

And let’s talk about our military members: Credit unions have a proud tradition of serving those who serve our country. Defense-focused credit unions (represented by the Defense Credit Union Council) alone count over 40 million members affiliated with the armed forces and veterans. These institutions understand the unique challenges military families face—frequent relocations, deployment, gaps in pay, predatory lending targeting service members—and they tailor services accordingly. Military credit unions offer things like guaranteed pay advances during government shutdowns and low-interest emergency loans during deployments. Without credit unions, many service members would have far fewer affordable financial options. Is ICBA seriously suggesting we punish these credit unions for fulfilling their mission? Doing so would directly harm the very people who protect our nation.

What would happen if Congress heeded the ICBA’s call to tax credit unions? Nothing good for regular Americans. Because credit unions have no outside owners, any new tax bill would come straight out of their members’ pockets. Every dollar a credit union pays in taxes is a dollar less available for, say, cutting a single mom’s auto loan rate or waiving a small business’s account fees. The result: higher loan rates, higher fees, and fewer services for the 139 million Americans who count on credit unions. It would amount to a tax hike on working-class families and small-business owners, delivered indirectly via their credit union accounts.

Research backs this up. A study commissioned by NAFCU (National Association of Federally-Insured Credit Unions) found that repealing the credit union tax exemption would reduce economic growth and even shrink federal revenue over time by driving people into higher-cost banking alternatives. Specifically, it projected the U.S. economy would forfeit $120 billion in economic activity over the next decade and even lose $56 billion in tax revenues due to the fallout. Why? Because credit unions wouldn’t be able to offer the same affordable financing that helps people buy homes, start businesses, and spend in their communities. The study also warned that ending the tax exemption could eliminate about 80,000 jobs per year as credit unions scale back and consumers pay more. In other words, ICBA’s proposal is so draconian that even Uncle Sam could end up collecting less in taxes because of the economic damage it would cause.

Who would be the biggest losers? Middle- and lower-income Americans. Credit unions are disproportionately present in low- and moderate-income areas—over 70% of credit union branches are in these communities, versus just 50% of bank branches. These are neighborhoods where a few hundred dollars in saved fees or interest each year makes a life-changing difference. These are the small towns and urban enclaves where community credit unions might be the only lender willing to help a startup florist or an aspiring mechanic. Take away the tax exemption, and you hamstring these credit unions’ ability to serve those folks. Working families could see their mortgage or car loan rates tick up, their accounts suddenly dinged by new fees, or their local branch closed because it’s no longer “profitable” to keep open. Small businesses would find it harder to get the micro-loans and lines of credit that credit unions, not Wall Street, specialize in. And military families—from active-duty service members to veterans—would lose out on specialized financial counseling and emergency relief programs that only mission-driven credit unions provide. The ICBA’s agenda would effectively yank away a support system that millions rely on, all to give banks a bigger slice of the pie.

ICBA’s rhetoric conveniently ignores a fundamental truth: credit unions and banks exist for completely different purposes. Banks exist to maximize profit; credit unions exist to maximize service. That’s why banks return profits to shareholders, while credit unions return benefits to members. The contrast is stark. While the megabanks boast record profits (U.S. banks collectively hauled in around $250 billion in profit last year), they give back only crumbs in community support. By one analysis, banks devote a measly 1% of profits to community reinvestment initiatives. Credit unions, on the other hand, plow almost all of their earnings back into the local economy—whether by offering a lower mortgage rate to a first-time homebuyer, opening a new branch in a cash-starved rural town, or sponsoring the local little league team. In 2022, credit unions reinvested tens of billions into efforts that directly boost financial health for ordinary people. They did this not because of a regulatory requirement or PR stunt, but because that is their entire reason for being.

That’s why the “tax subsidy” for credit unions is not some gift or handout—it is an investment in our communities that pays enormous dividends. For every dollar in tax that credit unions do not pay, far more than a dollar goes back to consumers in value. In fact, state and federal governments already reap benefits from credit unions’ activities: Credit unions collectively paid over $12 billion in taxes (payroll, property, sales, etc.) in 2023, even excluding income tax, and their economic contributions generated $20+ billion more in tax revenue indirectly. Lawmakers should ask: what do we get in return for banks’ tax breaks? Higher executive bonuses and stock buybacks? The comparison isn’t even close.

The ICBA’s crusade against credit unions is a textbook case of special interest lobbying disguised as concern for “fairness.” There is nothing fair about forcing not-for-profit cooperatives to pay taxes that will come from the pockets of working-class Americans. There is nothing fair about denying everyday people the better rates and lower fees that credit unions provide, especially when banks themselves quietly use tax gimmicks to fatten their bottom line. And there is certainly nothing fair about privileging Wall Street’s profits over Main Street’s well-being.

Credit unions serve a vital role in our financial ecosystem. They are the lenders who stay when big banks pull out, the institutions that help blue-collar families avoid predatory payday loans, the friendly face that greets our soldiers and teachers and farmers by name. Undermining credit unions will not strengthen community banks—it will simply leave millions of Americans with worse options. If Congress genuinely cares about working families, small businesses, and those who serve our country, it should flatly reject the ICBA’s self-serving demands. In the end, this debate isn’t about taxes; it’s about who our financial system should serve. Credit unions have proven over decades that when you prioritize people over profits, entire communities prosper. Rather than punishing that success, we should be celebrating it. Congress must see ICBA’s push for what it is—an attempt to pad bank profits under the false flag of “tax fairness.” The real fairness test is this: do we tax institutions that reinvest in the middle class, or do we allow banks to eliminate their last bit of true competition? The answer should be obvious. Hands off our credit unions—they are Main Street’s best ally, and our economy is stronger because of them.