Taxpayer advocacy group slams credit union tax exemption

A taxpayer advocacy group is calling for Congress to reconsider the credit union tax exemption.

Credit unions are not required to pay “entity-level taxes on their profits,” giving the industry an advantage over other financial services institutions, Thomas Aiello, a policy and government affairs associate for the National Taxpayers Union, wrote on Tuesday. This violates the idea that the country’s tax code should be neutral, meaning that decisions are based on the economic merits and applied fairly so no group receives an advantage, Aiello said.

Congress should specifically re-examine the tax status of large credit unions, which “may be stretching their advantages to compete directly with banks,” Aiello wrote for the conservative group. He noted that almost all membership and asset growth comes from the more than 300 credit unions with at least $1 billion in assets.

Credit unions buying banks and other types of businesses also invites additional scrutiny, Aiello argued, using Lake Michigan CU’s 2017 purchase of a Florida bank as an example. The deal allows residents of Florida to join the credit union even though it is based in a distant state, he noted.

“Permanently taking tax-paying business entities off treasuries’ tax rolls and shrinking the tax base is a textbook example of poor tax policy,” Aiello wrote. “The purpose of the tax code is supposed to be neutral, rather than helping one particular business gain the upper-hand in the free market.”

The National Taxpayers Union has called for Congress to review the tax status of credit unions before.

At least one industry group hit back at Aiello’s claims. Changing credit unions’ tax-exempt status could have wide-ranging effects, including eliminating 900,000 jobs, $38 billion in tax revenue and $142 billion in gross domestic product over the next decade, Dan Berger, president and CEO of National Association of Federally-Insured Credit Unions, said in a written response.

“When talking about tax fairness, people should be concerned about the billions in tax cut benefits banks enjoyed in 2019, which only boosted shareholder payouts and made them richer in the same decade they were bailed out from the financial crisis,” Berger wrote in the statement.