ICBA opposes any new bank-specific fees, punitive new tax levies, transaction taxes, limitations on the deductibility of FDIC premiums, or other proposals specifically targeting the financial services sector.
Tax Policy and Community Banks. ICBA continues to promote tax and budget policies that foster economic growth and support the community bank sector by providing direct tax relief and encouraging private savings and small business investment. A fair and unbiased tax code will enhance the viability of community banks and the vital role they serve in the U.S. economy as a source of lending for consumers, small businesses, and farms.
The Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act, signed into law in December 2017, provides significant tax relief for both C corporation and S corporation community banks. C corporations are taxed at a rate of 21 percent. S corporation shareholders are generally eligible for a 20 percent deduction of their business income.
Among other significant changes, the new law generally preserves the interest deduction for business borrowers, which had been targeted for elimination, reduces individual tax rates, increases the standard deduction, and increases exemption levels for the individual alternative minimum tax and the estate tax. ICBA views the recent law as a missed opportunity to eliminate or curb tax subsidies for credit unions and Farm Credit System lenders.
ICBA will press for extension of the individual provisions, including the pass-through deduction and AMT and estate tax relief, well before they are scheduled to expire at year-end 2025. ICBA will oppose any effort to increase the corporate rate.
New Capital Options for Subchapter S Banks. Subchapter S banks need new options to satisfy higher demands for capital from their regulators. These include allowing S corporation banks to issue preferred stock, increasing their shareholder limits, and allowing new IRA shareholder investments.
Tax Incentives for Community Bank Retained Earnings and Targeted Lending. Carefully designed tax incentives for community bank lending would lower credit costs for targeted borrowers and help community banks diversify their loan portfolios and comply with the Community Reinvestment Act.
ICBA believes tax incentives should support community bank lending to low-to-middle income individuals, small businesses, and small farms. Tax relief for community bank retained earnings would strengthen community banks and allow them to better serve their communities.
Parity in Taxation of Financial Services Providers. Many of today’s tax-exempt credit unions and Farm Credit System (FCS) lenders are multi-billion-dollar entities. New rules from the National Credit Union Administration (NCUA) will further blur the distinction between credit unions and community banks.
Many community banks that serve urban and suburban areas have already been squeezed out of consumer lending by tax-subsidized credit unions. Now, community bank commercial lending is also under threat. FCS lenders pose a similar threat to agricultural community banks. Credit unions and FCS lenders are becoming the equivalent of banks and should be taxed equivalently.
Estate Tax. The estate tax jeopardizes the succession of community banks from generation to generation. A family estate should never be forced to sell its interest in a community bank to pay a transfer tax. Forced sales of once family-owned community banks to other community banks or, frequently, to larger regional or national banks, coupled with a recent surge in regulatory burden, accelerate the current trend toward consolidation in the banking sector.
Consolidation reduces competition and results in fewer product offerings, lower rates on deposits, higher rates on loans and higher fees. As noted above, the Tax Cuts and Jobs Act temporarily doubles the estate tax exemption through 2025. ICBA will advocate for elimination of the estate tax, or at least for permanence of the higher exemption level before it expires.
Bank-Specific Revenue Raisers. ICBA is strongly opposed to any bank or finance-specific revenue raisers whether they be taxes intended to reduce the trading of financial assets or offset the cost of tax cuts. Moreover, in recent years, Congress and the Administration have increasingly turned to the banking sector as a source of revenue, or “pay fors,” to offset the cost of new spending wholly unrelated to the sector.
These have taken the form of taxes, fees, revenue cuts, and tax compliance measures administered by banks. The banking sector must not serve as a revenue source for unrelated spending. ICBA will oppose such measures even when they exempt community banks.
Staff Contacts: Alan Keller and Steve Keen