Letter to the Editor: CU Taxes

Dear Editor,

Recent events expose basic misunderstandings about credit unions and how they operate. Some bankers--and legislators influenced by banker misinformation--are promoting the idea that credit unions, because they offer personal financial services just as banks do, should be subject to income tax. Or, because some credit unions are expanding their service into previously unserved areas (with blessings from their regulators), credit unions should be subject to tax. Wrong and wrong.

Credit unions are exempt from paying income tax (mind you, they already pay payroll taxes, property taxes, and, in some cases, franchise taxes) because they are not-for-profit, cooperative, democratically controlled institutions owned by their members. A bank has a paid board of directors and pays dividends only to its owners. Credit unions do not pay their directors, and pay dividends to their owners--to all the members of the credit union. Credit unions return all excess income to members in the form of higher deposit rates, lower loan rates, and lower fees. And that’s estimated to deliver a $5 billion difference to consumers: $2 billion in higher savings dividends, $2 billion in lower loan rates, and $1 billion in fewer, lower fees.

The amounts banks pay stockholders dwarf their tax bills: Over the past five years, they’ve paid almost $71 billion more to stockholders than in taxes.

Credit unions, as successful as they are in serving their members, occupy a small part of the financial service business. Bank assets grew to $7 trillion at the end of 2002. Total credit union assets at year-end 2002 were $574 billion.

Credit union competition helps keep bank and savings and loan prices to consumers lower. For example, credit unions offering credit cards now charge an average two to three percentage points lower interest than other lenders. Imagine how expensive other lenders would make credit cards, or auto loans, if they didn’t have to compete with credit union rates. Is that the real motivation behind taxation threats to credit unions?

The truth is, a tax hike on credit unions is a tax hike on American consumers.