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Why CUs Can't Afford to Dismiss Tax Reform
Wednesday, March 18, 2015 6:40 AM

Last week, many lawmakers in Washington, DC, told CUNA's GAC attendees that they support the credit union tax-exempt status; however, according to some experts, becoming credit union complacency on this issue would be a big mistake.

"It's important for you to always be up on the Hill and explaining why it's so important to retain your tax-exempt status," said Mark Gerson, a tax lobbyist for Miller Chavalier. "It's going to be key for credit unions to stay in front of their policymakers on this issue." 

There are three primary reasons CUs must remain vigilant, despite the fact that so many lawmakers have gone on the record supporting the tax exemption: 

  1. Congressional turnover. Since 2009, Congress has experienced a 60 percent turnover, which means a lot of new people on the Hill need to be educated about why CUs deserve to keep their tax status. 
  2. Tax reform isn't over until a sitting president signs a bill. CUNA Chief Advocacy Officer Ryan Donovan says, "We know there is strong support for the credit union tax exemption in Congress, but we can't afford to take it for granted. If you're not at the table, you're on the menu." 
  3. The blank-slate approach. Chris Campbell, Senate Finance Committee Chairman Orrin Hatch's senior legislative staffer working behind the scenes at the Senate Finance Committee, asks, If all of the tax preferences are removed, which ones should they put back in? That means credit unions must be able to defend and justify their preference in the tax code.

There's a reason the tax code hasn't been revamped since 1986: it's not easy. Thirty years ago, the approach was to incentivize a consumer economy, and it worked. Now, Campbell said, it's time to move to more of a savings economy and finding ways to incentivize savings. And the timing is key.

Due to the upcoming presidential election, if a tax reform bill isn't passed in 2015, it will be a dead issue until 2017, by which time it could be a whole new set of players, and credit unions will have to start the whole process of educating lawmakers all over again.

"The longer we kick this can down the road, the harder this becomes," Campbell said, explaining that the growing burden of entitlements means "the less revenue we have to buy the tax rates down."

While that may sound like a brief reprieve, there's good reason for CUs to want this to be over and done with before the next presidential election. "If we miss it this year, then it's going to factor big in the presidential election," he said, and that means it becomes an even more highly visible, high-stakes game at that point.

And it may well already be coming to that, he suggested. "There may be a small window of opportunity right now on the corporate side," Gerson said, noting that Democrats and Republicans are just a couple of percentage points away in what they want to see happen for the corporate tax rate; Democrats are calling for lowering it from the current 35 percent to 28 percent, while Republicans are calling for 25 percent. "But on the individual side, the gap between the two parties is huge."

Source:  Credit Union Journal, Friday, March 13, 2015