When policy makers suggest a closer look at benefits received by a business from government, it’s probably natural that business would become defensive. Thus we have Bob Gallman, president/CEO of Louisiana Credit Union League writing a recent column in BIZ defending the exemption federally chartered credit unions have from the federal corporate and state corporate income tax.
His column was prompted by U.S. Senator Orin Hatch, chairman of the Senate tax committee, who suggested a closer look at this tax exemption was appropriate given the growth of credit unions and the straying of many from the original purpose for which credit unions were created.
Bottom line, credit unions are indistinguishable from tax paying banks in the products offered to customers, which begs the question, why are credit unions exempted from contributing to the federal and state governments? Seems a fair question.
Over the last six years assets in credit unions have grown 43 percent compared to 34 percent growth for banks. The tax exemption fuels this divergence. Today credit unions have deposits totaling $1.1 trillion, that’s a very substantial industry and does not need the subsidy to grow. I could give any number of examples, but look at Jefferson Financial Federal Credit Union in Metairie. It has $890 million in assets, larger than about 90 percent of the banks in Louisiana, and earned $8.6 million in 2017. Pretty impressive for a “nonprofit.”
I am happy for their success, but believe that the federal government should not pick winners and losers by giving a tax privilege to some and not others that do the same thing. The government needs to held accountable when the same policy that helped credit unions get off the ground when congress created the national credit union charter in 1934 in the midst of the depression, to 2018 when many credit unions have strayed from their original mission of serving a narrowly defined group with a common bond and are competing in the market with tax paying banks.
The mantra that credit unions are nonprofits and are too delicate to pay tax based on the income they earn may have been valid in 1934 but not in 2018. Imagine what a restaurant, oil and gas company even a business news magazine could do if not subject to tax on income. And then imagine what those doing the same thing in the market trying to compete.
It’s time to address this government subsidy and let the market work.
Submitted by Robert Taylor, CEO of the Louisiana Bankers Association