Could Credit Union Taxation Aid the Economy?

by Gina Ragusa

In light of the impending sequester, wouldn’t taxing credit unions make more sense? As millions face pay cuts and job loss; possibly sending the country back into a recession, shouldn’t Congress look at this 70 year old law of providing tax exempt status to all credit unions?

For years the debate of credit union tax exemption has raged, with the most recent issue stemming from the push to increase the member business lending cap from 12.25% of well capitalized assets to 27.5%. Many bankers say that enough is enough and that credit unions are given far too many advantages to the detriment of the average consumer.

Patrick La Pine, president/CEO of League of Southeastern Credit Unions & Affiliates says that the credit union tax exemption is not grounded in the products and services credit unions offer their members.

“The credit union tax exemption has been reaffirmed by Congress a number of times since 1937,” he says. “The fact remains that credit unions never had a cap on member business lending before 1998 and never had a problem with bad lending practices.”

“The cap is arbitrary and was lobbied for by bankers on H.R. 1151. Times have changed dramatically for small businesses and they are in need of capital. Credit unions want to extend the cap so more small businesses can have access to capital. It’s a simple supply and demand argument. Some credit unions don’t do much business lending because they can reach their cap quickly and the expense of hiring staff outweighs doing 12.25 percent of their assets for business lending. Banks make the tax exemption argument because it makes headlines and gets attention. The fact of the matter is that extending the MBL cap is not a perk, but a necessity for thousands of small businesses in Alabama and Florida, as well as across the nation.”

continue reading »