By Robin Hess, CUInsight
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For nearly a century, credit unions have enjoyed a federal tax exemption designed to support their mission: serving people of modest means through a cooperative, not-for-profit model. Today, as credit unions grow larger and more bank-like, the question of whether this exemption still makes sense has resurfaced. Recent studies, surveys, and policy proposals reveal a heated debate with significant implications for consumers, communities, and the financial industry.
The economic impact argument
Research by economists Robert Feinberg and Douglas Meade suggests that removing tax exemption could have severe consequences:
- GDP loss: $266 billion over 10 years
- Jobs lost: 822,000
- Consumer cost increase: $234.6 billion due to higher loan rates and lower deposit yields
Goal: Demonstrate that taxing credit unions would harm consumers and the economy.
Debate: Critics argue these studies are industry-funded and overstate benefits, while banks claim the exemption creates an uneven playing field.
The fairness & competitive balance argument
Reports from the Tax Foundation and banking associations highlight that credit unions now hold $2.2 trillion in assets and avoid roughly $4 billion in annual federal taxes. They argue:
- Large credit unions compete directly with banks but pay no taxes.
- Bank acquisitions by credit unions reduce state tax revenues.
Goal: Push for tax parity between banks and credit unions.
Debate: Credit unions counter that banks enjoy their own tax breaks (e.g., Subchapter S status) and that their cooperative model still fulfills a public-service mission.
Policy proposals
Industry groups like ICBA (Independent Community Bankers of America) advocate ending exemptions for credit unions with assets over $1 billion or all federal credit unions, estimating $30 billion in revenue over 10 years.