June 21, 2013
The Honorable Max Baucus
Chairman
Senate Finance Committee
Washington, D.C. 20510
The Honorable Dave Camp
Chairman
House Ways and Means Committee
Washington, D.C. 20510
The Honorable Orrin Hatch
Ranking Member
Senate Finance Committee
Washington, D.C. 20510
The Honorable Sander Levin
Ranking Member
House Ways and Means Committee
Washington, D.C. 20510
Re: The Importance of Retaining the Credit Union Tax Exemption
Dear Chairman Baucus, Chairman Camp, Ranking Member Hatch and Ranking Member Levin:
On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents the interests of our nation’s federal credit unions, I write today in response to the letter dated June 20, 2013 from Camden R. Fine of the Independent Community Bankers of America (ICBA).
NAFCU recognizes the process that both committees have set up to collect information and comments about tax reform and we have appreciated the opportunity to participate in that process. Unfortunately, the bankers continue to choose to go around the process that has been clearly set. While we respect the process that has been established, we must defend our industry from these attacks of misinformation.
To that end, we continue to urge you to protect the credit union federal corporate income tax exemption as you move forward with tax reform. As we have communicated to you before, the cumulative benefit credit unions provide the greater economy totals over $10 billion a year according to an independent study released by NAFCU last year. As the study also shows, altering the tax status of credit unions would have a devastating impact not only on credit union members across the country, but also on consumers and small businesses in general. Eliminating the credit union tax exemption would result in the loss of 150,000 jobs a year, a shrinking of the GDP and a net loss of revenue to the federal government. I have included a copy of the study summary along with this letter.
Simply put, the federal corporate income tax exemption is an issue of survival for credit unions. Despite what the bankers claim, there remain significant regulatory and statutory differences between not-for-profit member-owned credit unions and other types of financial institutions – including limits on who they can serve and their ability to raise capital. If the federal corporate income tax exemption was removed, most would convert to banks or just go away. Without credit unions, which serve to provide checks and balances in the marketplace, for-profit banks would likely increase rates and fees on consumers to enrich their shareholders at the public’s expense.
Furthermore, we are perplexed as to why, the ICBA seems to ignore the good work of your staff on the Joint Committee on Taxation (JCT) and the JCT’s own estimate of the cost of the credit union federal tax expenditure that puts the five-year (2013-2017) cost of the credit union at $3.9 billion (p. 35), much less than the numbers found in Mr. Fine’s letter (“Estimates of Federal Tax Expenditures For Fiscal Years 2012-2017,” February 1, 2013).
We would note also that, nearly 1/3 of banks are Subchapter S corporations and pay no corporate income tax. Some estimates put the value of their tax break as greater than the value of the credit union tax exemption. Perhaps that’s an issue that should be examined greater in the tax reform process.
Finally, a report released by the Special Inspector General for the Troubled Asset Relief Program (TARP) found that out of the 332 banks participating in the small business lending fund program run by the Treasury Department, 137 used more than half of about $4 billion disbursed by the program to help fund their exits from the TARP, with one community banker describing it as “…a bit of a shell game.” (“Tale of Two Loan Programs,” The Wall Street Journal, October 20, 2011).
Thank you for the opportunity to respond to these attacks against our industry. We urge you to retain the credit union federal income tax exemption as tax reform moves forward. If my colleagues or I can be of assistance to you, or if you have any questions regarding this issue, please feel free to contact me or NAFCU's Vice President of Legislative Affairs Brad Thaler, at (703) 842-2204.
Sincerely,
Fred R. Becker
President and CEO