Should Credit Unions Pay Taxes?

By Dan Caplinger, Motley Fool

Credit unions got a big reputational boost during the financial crisis, as banking customers protested what in their eyes were reckless lending practices that led to massive bailouts of traditional banks. Especially in the aftermath of the crisis, as banks made numerous attempts to raise fees to recoup losses numerous attempts to raise fees to recoup losses, many bank customers fled to credit unions for relief.

Yet now, banks are trying to fight back. In Congress, bank lobbyists are waging a battle against credit-union supporters credit-union supporters over whether credit unions should continue to benefit from a tax exemption they’ve had ever since the Great Depression.

The tax argument
Put simply, banks think it’s unfair that they have to pay taxes while credit unions don’t. Banks are treated just like any other profit-making enterprise profit-making enterprise, and get taxed accordingly. In the case of the biggest banks, those tax bills can be truly massive. JPMorgan Chase has allowed for income-tax provisions of $8.9 billion on its balance sheet over the past 12 month. Wells Fargo ‘s tax provisions have been even greater, at $9.7 billion.

By contrast, credit unions pay no federal tax. With their structure as member-owned cooperatives member-owned cooperatives, credit unions plow their profits back into their banking products, offering higher interest rates on their deposit accounts, and lower rates on loans.

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