FOR IMMEDIATE RELEASE
Should Credit Unions Be Taxed?
New CRS Report Questions Tax Exempt Status
Washington, D.C. (August 24, 2005) - The Independent Community Bankers of America (ICBA) applauds new research by the Congressional Research Service (CRS) that questions the ongoing tax-exempt status enjoyed by credit unions.
The new CRS report entitled "Should Credit Unions Be Taxed?" notes: "Over the past 30 years, most of the distinctions between credit unions and other depository institutions have been eliminated or reduced because of deregulation; consequently, the justification for the tax exemption for credit unions has been increasingly questioned." It also said that while deregulation has resulted in the rapid expansion of most services offered by credit unions, their "income tax exemption has allowed them to grow more rapidly than other depository institutions."
"With a growing body of research showing credit unions are more similar to taxpaying banks than ever before, policymakers will have to address the tremendous tax and competitive inequity posed by tax-exempt credit unions," said Camden R. Fine, ICBA president and CEO. "Giant bank-like credit unions are the fastest growing part of today's $670 billion credit union industry. Despite the fact that their competitors, thousands of community banks, shoulder a hefty tax bill, these credit unions don't pay any taxes. That's simply not fair play."
"As our nation examines ways to make our tax system more fair and equitable, Congress needs to create greater parity between tax-exempt credit unions and taxpaying community banks," added Fine.
The report added that today, through credit union service organizations, "credit unions may provide their members with a panoply of sophisticated financial services and products that rivals the offerings of banks and thrifts." The report observed that, "Since many believe that an economically neutral tax system requires that financial institutions engaged in similar activities should have the same tax treatment, the income tax exemption for credit unions likely will occasion continuing debate."
The CRS report further documented that credit unions and thrift institutions were exempt from federal income taxes under the same tax code provision until 1951. The exemption for thrifts was repealed in 1951 when the differences between banks and thrifts became blurred, but the tax loophole for credit unions was continued.
Recent independent research by the non-partisan Tax Foundation is highlighted in the new CRS study. The Tax Foundation study, entitled "Competitive Advantage: A Study of the Federal Tax Exemption for Credit Unions," reveals that credit unions will escape $31 billion in federal taxes over the next 10 years yet indicates there is little or no evidence credit unions are better serving the financial needs of low and moderate income individuals despite their special tax-exempt status. To review the Tax Foundation study, visit www.icba.org/files/PDFs/2005taxstudy.pdf.