Friday, December 2, 2022     Volume: 23, Issue: 40

Santa Maria Sun / Commentary

The following article was posted on August 2nd, 2017, in the Santa Maria Sun - Volume 18, Issue 22 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [] - Volume 18, Issue 22

A tax exemption that is no longer justified


When Congress originally established credit unions in the 1930s, they were granted a federal tax exemption because they existed to provide small-dollar loans to close-knit groups of people of modest means. However today, many credit unions are virtually indistinguishable from taxpaying community banks, and they have leveraged this taxpayer subsidy to aggressively grow—becoming a $1 trillion industry. And as the credit union industry expands, it does so at the expense of all taxpayers, who individually pay more federal taxes than this giant industry.

According to an annual report by the congressional Joint Committee on Taxation, this subsidy will cost taxpayers more than $14 billion from 2016 to 2020. The value of the tax exemption is expected to climb by nearly 25 percent over this period, growing from $2.6 billion per year in 2016 to $3.2 billion per year in 2020—and this exemption will only continue to balloon in following years. This tax exemption also disproportionately benefits a handful of the largest credit unions. Nearly 75 percent of the tax exemption for credit unions is held by the largest five percent that have assets of $1 billion or more.

We often hear that this tax emption is justified because credit unions exist to serve those of modest means. But that is most often not the case, as studies have shown that in fact banks serve more people of modest means than credit unions. A Government Accountability Office study found that only 31 percent of credit union households are of low or moderate means compared to 41 percent of bank households. Additionally, only eight percent of credit union mortgages go to low-income borrowers.

Over the years, credit unions have continued to grow without limits to their fields of membership, and as more and more credit unions offer business-type commercial loans and deposit products, the distinctions between banks and credit unions cease to exist. However, because they do not pay any taxes, or have any community reinvestment requirements like banks do, credit unions have a distinct pricing advantage, and can offer loans and deposits at more competitive rates.

This year, Congress has a once-in-a-generation opportunity to pass comprehensive tax reform, which will ultimately grow the U.S. economy and benefit all taxpayers. Members of Congress are right to look at every option available to broaden the base and lower rates to support economic growth. No industry should get a free pass in tax reform, and it is entirely appropriate for Congress to examine whether the statutes they established in the Depression era still match the facts on the ground.

In the context of the tax debate, the very largest credit unions’ tax-exempt status should most certainly be on the table. Consider that today there are more than 280 credit unions with assets exceeding $1 billion, a tremendous increase from 1991 when only 11 credit unions were this large. These credit unions are individually bigger than 90 percent of taxpaying banks—that collectively pay more than $4 billion annually in federal taxes across the nation—and they continue to aggressively lobby to expand their banking powers.

In defense of their tax-exempt status, we will often hear credit union industry leaders claim that they simply pass on the savings from their tax-exempt status to their members. This rings very hollow when across our state and nation we see the very largest credit unions spending lavishly on new corporate headquarters, and spending millions on naming rights for sports stadiums, college football game sponsorships, and Super Bowl ads. Consider Navy Federal Credit Union, whose commercial you may recall from this year’s Super Bowl, where the going rate for a 30-second ad was nearly $5 million. They are the nation’s largest credit union with nearly $80 billion in assets, yet they pay zero in federal taxes. Those taxes would support our nation’s overall national defense needs, including the salaries and benefits of those serving in the armed forces.

We have no objection to the credit unions that are adhering to their mission of serving individuals of modest means and those united by a common bond. But the largest credit unions, which allow virtually anyone to join as a member, have gone far beyond this intent and it is time for that to change. 

Simone Lagomarsino is the president and CEO of the California Bankers Association. Send your thoughts to

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