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Taxation Report Targets Credit Union Tax Exemption
Monday, February 6, 2017 6:35 AM

According to an annual report on tax expenditures published last week by the congressional Joint Committee on Taxation, the credit union tax exemption will cost the federal government $14.4 billion between 2016 and 2020.

For many years, banking trade groups have targeted the credit union tax exemption, alleging that it gives credit unions an unfair advantage over banks, so the committee’s tax estimates are likely to be the starting point for any calculations in comprehensive tax reform.

The joint committee defines tax expenditures as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”

Congressional Republicans have said they want to tackle comprehensive tax reform during the current Congress—a commitment that was repeated by Senate Finance Chairman Orrin Hatch (R-Utah) in a speech recent at the U.S. Chamber of Commerce. 

“The Joint Committee on Taxation’s report is an important reminder that credit unions can’t afford to take our tax status for granted,” said Cornerstone Chief Advocacy Officer Jim Phelps. “It’s been over 30 years since Congress passed comprehensive tax reform, and there is a good chance that this issue will advance in the 115th Congress and become law. The banking trade groups will use this as an opportunity to attack our tax status.”

“The credit union tax status is based on our unique structure and mission, and consumers benefit to the tune of nearly $10 billion annually because of the credit union tax exemption,” said Phelps. “Furthermore, credit unions DO pay taxes—real property taxes and payroll taxes, and state-chartered credit unions pay unrelated business income tax.”    

A recent American Banker headline reads, "Credit union loophole should be first casualty in tax reform." Phelps reminds credit unions, and consumers as well, “A tax on credit unions would be equivalent to a tax increase on over 100 million credit union members.”   

“During the CUNA GAC and back home in the district, it is essential that credit unions continue to communicate the importance of our tax status to members of Congress and reinforce the message that comprehensive tax reform legislation must not eliminate or alter the credit union tax status,” Phelps said.

The taxation report includes both tax exemptions benefitting individuals and corporations. Some are smaller than the credit union exemption, while others are larger. For instance, the deduction for mortgage interest on owner-occupied property will cost the federal government $357 billion between 2016 and 2020, the committee said. 

Cornerstone will be closely following any new developments regarding taxation.