Recently, Senate Finance Chairman Orrin Hatch (R-Utah) openly questioned federal regulators on the justification of the credit union tax exemption status. On behalf of Louisiana credit unions and their nearly 1.2 million members, I write today to remind you of the value credit unions provide to the greater U.S. economy. It is critical we educate members of Congress as well as consumers on the credit union difference and the vital role they play in the community.
Profits returned to members. Earnings of a credit union, minus operating expenses, are returned to our members in the form of higher than average dividends, lower than average rates charged on loans and enhanced products and services. By losing the not-for-profit, cooperative structure, credit unions would be forced to focus on increasing profits instead of their member-owners. This would adversely impact savings, borrowing rates and increase fees for millions of Americans.
Impact of Removal. Altering the tax status of credit unions would have a devastating impact not only on credit union members, but also on consumers and small businesses in general.
The tax-exemption produces significant economic benefits to credit union members that far outweigh its cost. Eliminating the tax exemption would result in $38 billion in lost tax revenue, $142 billion in reduced gross domestic product and the elimination of nearly 900,000 jobs.
Paid Taxes and Cost of Regulation. Unlike other businesses, credit unions do pay federal, state and local taxes, such as employment and property taxes. Credit unions are exempt from paying corporate income taxes because earnings are returned to members, who are taxpayers themselves. They are not shareholders in ‘for-profit’ businesses like banks. Additionally, credit unions are regulated extensively by state and federal government, having to follow many of the same guidelines as bankers do. Regulatory costs borne by credit unions have increased by $800 million over the past two years.
Ownership. As a credit union member, you are an owner. Our Board of Directors are unpaid volunteers who offer their time and energy in hopes of seeing credit unions prosper and grow, unlike other financial institutions who pay their shareholders. Their earnings, minus operating expenses, are divided among stockholders. If credit unions become “more like banks,” the self-help, volunteer characteristic of credit unions, and the community as a whole, would become less distinct.
Reasons for Existence. The banking lobbyists would like the tax status to be limited based on the products or services credit unions offer, the size of credit unions individually and as a sector of the financial services industry, their efforts to support their community and raise overall awareness and other factors. But these factors have nothing to do with why Congress originally conveyed the tax status, nor why it continues to be extended. Of course, credit unions have evolved. The entire financial landscape has, so credit unions need to keep up with the demands. The fact is credit union structures have not changed and they continue to fulfill their mission. We always have and always will exist to help people, not make a profit. We give back in ways that bankers do not. Building personal relationships and maintaining exceptional service is our top priority, and our members are fiercely loyal for this reason.
Therefore, I urge members of Congress to recognize the value that credit unions provide as the state trade association continues to reaffirm the structural, purposeful and philosophical-centered mission of credit unions.
Submitted by Bob Gallman, President/CEO of Louisiana Credit Union League