NAFCU Writes Obama, Romney & Geithner on CU Tax Exemption

October 3, 2012

President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, DC  20500

Dear Mr. President:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents the interests of our nation’s federal credit unions, I write today to urge your continued support of the nearly 94 million Americans that rely on their local credit unions to meet their financial service needs.  Credit unions are not-for-profit member-owned cooperative financial institutions.  The core mission of credit unions is to provide their members low-cost alternative financial services.  Credit unions have accomplished this mission since the establishment of the first credit union over 100 years ago in Manchester, New Hampshire.

As you know, not-for-profit credit unions have been statutorily exempt from federal income taxes since 1934.  A key reason that credit unions are able to accomplish their mission of providing low-cost alternative financial services is the federal income tax exemption.  Numerous studies over the years show that the value of the credit union tax exemption far outweighs any revenue that the government would collect from taxing credit unions.  Studies also show that in addition to credit union members, bank customers also benefit from having credit unions in the marketplace as they serve as a check on rates for all Americans.  Without federal tax exemption, credit unions would not be able survive and the American public would suffer.

Recently, NAFCU commissioned a study, a copy of which is attached to this letter, to examine the benefits of the credit union tax exemption and what would happen if the tax exemption is eliminated.  The results of the study shed further light on the value of the credit union tax exemption to consumers, our nation and the economy, and show the disastrous effect that its repeal would have.  Among the key findings of the study were:
Eliminating the federal credit union tax exemption will reduce U.S. Gross Domestic Product by about $148 billion (in 2010 dollars) over the next decade ($14.8 billion per year); resulting in a loss of 150,000 jobs per year, or a total of 1.5 million jobs over the next decade.
The total benefit to U.S. consumers from the presence of the federal tax exemption for credit unions is approximately $10 billion per year. From 2005-2011, the direct consumer benefit totaled $72.6 billion.  
$1.5 billion per year in federal income tax revenue will be lost due to the reduction in consumers’ personal income as a result of the anticipated reduction in the number of credit unions in the marketplace. This number is three times the Senate Budget Committee’s 2010 estimate of lost revenue from the credit union federal tax exemption ($500 million for FY’12) – forecasting that the Federal Government will ultimately lose revenue by imposing a federal income tax on credit unions.
The study also found that credit union savings and loan rates outperform bank rates across the board. The estimated total direct benefits to credit union members from these better loan and deposit rates for the period 2005-2011 is nearly $43 billion.  Moreover, better credit union loan and deposit rates benefit bank customers due to increased competition.  The study estimates that if the credit union market share was reduced by 50%, the total cost to bank customers of higher loan rates and lower deposit rates would have totaled almost $30 billion over the seven year period examined, 2005-2011.

Without question, the credit union tax exemption provides great value to our nation and its repeal will have a disastrous impact, especially on the middle-class.  As you know, middle-class Americans have been unable to obtain credit from profit making mega-banks and are struggling to regain economic footing after the most devastating financial meltdown since the Great Depression.  Given the value of the credit union tax exemption to the American people, both Democratic and Republican Presidents have historically affirmed their support of credit unions and their federal tax exemption.  We ask you to do the same.  

On behalf of 94 million credit union members, I respectfully ask you and your administration to publicly reaffirm your support of credit unions and the credit union federal tax exemption.  Such an affirmative support will be shared with the credit union community and the nation’s 94 million credit union members.

Thank you for your attention to this important matter.  If we can answer any questions, please do not hesitate to contact me or NAFCUs Executive Vice President of Government Affairs, Dan Berger, at (703) 522-4770.

Sincerely,

Fred R. Becker
President and CEO

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