Credit union tax exemption is vital for economic success

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As Americans continue to pick up the pieces of COVID-19, bank lobbyists persist in trying to eliminate competition. These banking business groups have engaged in bogus attacks on the credit union tax exemption, calling for its elimination.

But what would happen if the tax exemption was removed? A new study examines this and found that lack of tax exemption for credit unions would deprive communities of a trusted financial partner and be detrimental to all consumers across the country.

In the wake of the pandemic, credit unions, which are not-for-profit cooperative financial institutions, have clearly demonstrated their commitment to consumers and to the collective goal of fostering a healthy, responsible and prosperous financial market.

Credit unions are essential for driving economic growth, especially for American households and family businesses, and operate only to meet the needs of their communities. Due to their cooperative, not-for-profit structure, the tax-exempt status of credit unions has been constantly reaffirmed by the IRS, the Treasury Department, and even Congress. This allows credit unions to focus on providing consumers with better rates, lower fees, and going above and beyond to serve the communities in which they operate.

A new study by Dr. Robert M. Feinberg of the American University and Dr. Douglas Meade of the Interindustry Economic Research Fund found that removing the credit union industry’s tax-exempt status would reduce economic activity $ 120 billion over 10 years and would cost the federal government $ 56 billion in tax revenue. The independent study was commissioned by NAFCU.

Even more alarming, the removal of tax-exempt status would eliminate nearly 80,000 jobs a year over a decade, undermining the nascent economic recovery and plunging dozens of already struggling American workers into financial distress.

For these reasons alone, Congress should reject any call to eliminate the tax exemption for credit unions.

The study also looked at the deep-rooted benefits of credit unions.

To add to the long list of reasons why credit unions are beneficial to their 127 million members and consumers as a whole, the study found that tax-exempt status benefits all households up to 15%. billion dollars annually. The loss of these benefits would be particularly serious in minority and rural communities. Among minority deposit-taking institutions, there are currently more than three times as many credit unions as there are banks. And while banks have reduced the number of branches in rural areas by 10% since 2012, credit unions have grown their network of rural branches during this period.

Feinberg and Meade presented data showing that consumers with savings, checking and money market accounts at credit unions were earning interest at a rate 61% higher than what would be earned at a bank. The direct benefits for members of credit unions have averaged $ 7.2 billion annually over the past decade, while non-members who benefit from the competitive influence of credit unions on For-profit institutions saw even greater benefits of $ 8.1 billion per year.

In addition, consumers benefit from better rates on new and used auto loans when the loan is obtained from their credit union; credit union rates are 34% lower than bank rates. Credit card and unsecured loan rates are also 10% lower; Linked to the ever-changing housing market, home loans are down 3% at credit unions. The study also found that without credit unions, banks would charge consumers higher rates.

It’s also worth noting that while the banks continue to mislead lawmakers about the importance of the tax-exempt status of credit unions, they also neglect to highlight the tens of billions of dollars in annual tax cuts that ‘they receive under the Tax Cuts and Jobs Act 2017. Not to mention that almost a third of the banks are subchapter S companies that don’t even pay corporate tax. The banking industry even racked up more than $ 240 billion in fines related to consumer exploitation after the 2008 financial crisis, as a report by Keefe, Bruyette & Woods noted.

More and more consumers are choosing to meet their financial service needs with credit unions because they have seen how credit unions go the extra mile, especially when needed. During the pandemic crisis, credit unions helped many small Main Street businesses, many of which did not have existing banking relationships, access the Small Business Administration’s paycheck protection program.

At a time when financial strength is at the forefront of economic recovery, it is essential to protect consumer choice and promote competition in financial services. If lawmakers maintain the tax-exempt status of credit unions, the benefits will be critical in reviving the economy and contributing to the financial success of all Americans.

Dan Berger Dan Berger

Dan Berger is President / CEO of NAFCU in Washington, DC

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