The United States banking industry is currently experiencing a series of small bank acquisitions by much larger credit unions. This expansion is of public interest as it serves to reduce federal, state and local tax bases. You see, while credit unions and banks provide substantially the same financial services, credit unions are exempt from state and federal income taxes.
The credit union tax exemption was established by Congress decades ago for people of modest means with a “common bond.” As the industry has gradually strayed from its mission, its -taxpayer-subsidized status appears to be under increased scrutiny in Washington. Even executives at smaller credit unions are wondering whether the exemption makes sense for the largest and most growth-oriented members of their industry.
Last year’s bank acquisitions by credit unions alone reduced tax revenue by $3.9 million annually according to the Federal Deposit Insurance Corporation. Moreover, the congressional Joint Committee on Taxation calculated the 2018-2022 credit union industry’s tax exemption at nearly $2 billion annually – at the federal level alone.
Credit union reliance on corporate welfare isn’t the only concern –
credit unions are not subject to the full set of regulations that community banks face, including Community Reinvestment Act rules that encourage financial institutions to meet the needs of low- and moderate-income communities.
Each credit union acquisition of a community bank burdens local taxpayers and reduces revenue to local public services. This growing trend illustrates that tax-exempt credit unions have become virtually indistinguishable from taxpaying commercial banks. It’s time for our representatives in St. Paul and Washington, D.C., to take action on this unbalanced arrangement and join many other countries around the world in leveling the financial services sector’s tax and regulatory responsibilities.
Vice President, Harvest Bank