Credit Unions Caught in Political Dodge Ball


For a day, credit unions’ federal tax exemption appeared to be in jeopardy. H.R. 6474  would have gradually repealed credit unions’ tax-exempt status over five years. Fortunately for credit unions, a spokesman for Rep. Dennis Ross, the bill’s sponsor, explained that the inclusion of this in the bill was accidental, and it will be deleted by a manager’s amendment.

While credit unions seem to have dodged this lob for now, it did draw attention to the credit union tax exemption, which the banking lobby is sure to relish. The issue has been brought up time and again, and particularly since the economic crisis and the resulting Simpson-Bowles commission, but this was the first time credit unions were named specifically in federal revenue legislation in decades, intentional or not.

Credit unions could certainly survive a 15% to 35% tax hit, but they would come out nothing like they are today. Credit unions’ net income in aggregate was 86 basis points as of the second quarter, so a tax would very much change the way they operate. Credit unions with less than $50 million in assets would essentially be wiped out if this were to come to fruition. Credit unions with $10 million to $50 million in assets have an aggregate net income of 30 basis points, according to a report from Catalyst Strategic Solutions. Those $2 million to $10 million have net income of 6 basis points. The credit unions smaller than $2 million in assets are already at a negative 49 basis points. Even the $50 million to $100 million category are at 45 basis points in net income.

The credit union community would survive, but the worst result would be that they would be working to pay the taxman rather than helping their members. With all of the other regulatory restrictions and burdens, what would be the point? A tax on credit unions would leave many moderate-income Americans out in the cold. It would eliminate the local, community-oriented nature of most credit unions. There wouldn’t be a reason for a true grassroots movement like Bank Transfer Day. Taxing credit unions would give Americans less, not more.

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