Credit Union Tax Exemption Is Unjustified

Last week a study was released by Kenneth J. Kies and Bert Ely titled, “Tax Exemption for Credit Unions: An Unjustifiable $10 Billion Tax Expenditure.” While much of the analysis was regurgitation of previous arguments by the banking industry, it did offer some new information.

The main premise is that credit unions have evolved into large, profitable financial institutions. They bear little resemblance to their origination as small, volunteer-run depository institutions, with depositors sharing a common bond such as place of employment or a church. The main points supporting this conclusion are:

  1. The field of credit union membership has broadened to where the only common bond is either communitywide, or is tied to a sham membership in some organization that charges no dues.
  2. The credit union industry has been halved over the past 30 years or so to 6,895, as of March 31, 2013; meantime, assets have grown to $1.07 trillion. In 1991 there were only eight credit unions nationwide with $1 billion or more in assets, while today there are 208! Another 223 are between $500 million and $1 billion in assets. For perspective, there are only 500 banks and thrifts that are $1 billion or more in assets; 100 of those banks are more than $10 billion. Thus the community banking industry and the credit union industry have about the same number of institutions.
  3. The services provided by credit unions today are the same as those provided by banks and thrifts.
  4. Credit unions are changing their names to ambiguous ones to hide their identity as credit unions. Yet when on Capitol Hill, they proudly cluster under the credit union movement banner.
  5. In 2012 the credit union industry gained a record profit of $8.5 billion. Having started the year with $74.2 billion in individual profit, credit unions returned 11.48 percent on equity. I can assure you that the taxpaying banks and thrifts of Indiana did not enjoy that robust of a return on equity.

In 1917 the credit union industry was granted tax-exempt status due to the small, volunteer-run nature of a common group of individuals. It also was determined that credit unions bore similarities to mutual thrifts and mutual insurance companies. In 1951, however, mutual thrifts and mutual insurance companies lost their tax exemption.

Since all other mutual financial companies have lost their tax exemptions, and since credit unions are now professionally run, highly profitable organizations with no common bond, it is time that they be allowed to help finance government services through the payment of taxes.

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