Bank on it: Taxing credit unions would hurt all

By Patricia Wesenberg, New Jersey Star-Ledger 

As tax reform picks up speed in Congress, special-interest groups are storming Capitol Hill to ensure they get favorable tax treatment.

Fortunately, some groups — including credit unions — are looking out for the interests of hardworking Americans in this tax reform debate.

For years, big banks have been trying to saddle their nonprofit credit-union competitors with new taxes. They see a congressional tax reform push as their best chance to sneak such taxes in.

Consumers should hope that the big banks don’t succeed. New taxes on credit unions would pick the pockets not just of their 96 million predominantly middle-class customers, but those of all Americans — by reducing competition in the financial services sector.

Credit unions and banks offer many of the same services, such as checking accounts, savings accounts and home mortgages. But they couldn’t be more different in philosophy and structure.

As nonprofit financial cooperatives, credit unions exist to benefit their member-owners. They do so by charging low or no fees and offering higher interest rates on savings and lower rates on loans. They’ve advanced that mission since the 1930s, when Congress authorized their creation and granted them nonprofit status.

Banks, in contrast, are obligated to maximize profits for shareholders. And profitable they are, with some of the highest margins of any industry.

Today, roughly 40 percent of Americans belong to credit unions. They’ve proved to be especially valuable for middle-class families, small-business owners, low-income seniors and others looking to avoid the fees that have proliferated at banks.

The majority of credit unions don’t have minimum balance requirements. Nearly three-quarters of credit unions offer free checking, compared with just 39 percent of banks. Competitive pressure from credit unions has no doubt forced many banks to rethink their fees — or eliminate them altogether.

Credit unions also best banks on interest rates. The average rate for a one-year certificate of deposit at a credit union, for example, is 50 percent higher than that offered by the average bank.

Interest rates on car loans at New Jersey credit unions are about a quarter lower than those at banks. Nationwide, they’re one-third lower.

And on credit cards, New Jersey credit union members face interest rates that
are 25 percent lower than those at banks
in the state. That’s even better than the
20 percent difference that’s the norm across the rest of the country.

Thanks to these more favorable rates, credit union members realized between $4.3 billion and $8 billion in economic benefits a year between 2005 and 2011. And by moderating the pricing behavior of banks, credit unions delivered $10 billion annually in benefits to all consumers.

In New Jersey, the numbers are similarly eye-popping. New Jersey credit unions delivered some $45 million in direct financial benefits to their 1.1 million members last year.

But those benefits would vanish if credit unions were to lose their nonprofit status and be forced to pay federal income taxes. They’d essentially become for-profit banks. Fees and interest rates would go up for all consumers, not just those at credit unions.

In fact, scrapping the credit union tax exemption would barely generate $500 million in revenue in 2013, according to an analysis by Congress’ Joint Committee on Taxation. This represents just 0.008 percent of the projected federal budget deficit for 2013.

Yet the economic impact of such taxes would be disastrous.

The federal tax code certainly merits reform. But lawmakers must not unwittingly line the pockets of the banking industry at the expense of average Americans. Slapping credit unions with new taxes would do just that. It’s time to ensure that doesn’t happen.

Patricia Wesenberg is chair of the Credit Union National Association and president and CEO of Central City Credit Union in Marshfield, Wis.

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