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Credit Union Tax Fight Could Hurt Savers

man in suit emptying out a wallet into the hands of Uncle Sam.Recently, Utah-based Mountain America Credit Union sent members an email urging them to join the “Don’t Tax My Credit Union” movement.

This involves the ongoing battle between banks and credit unions over the latter’s federal tax status.

With accounts at nine credit unions, I admit to having dogs in this fight.

But personal interests aside, I believe credit unions are in the right here.

For years, the Internal Revenue Code has exempted both federally chartered and state-chartered credit unions from income tax.

Banks, under the guise of “tax reform,” want to eliminate this exemption.

The American Bankers Association (ABA), the banks’ lobbying arm, argues that changes in the credit union industry over the years have made the exemption unnecessary and inappropriate.

No longer, it argues, do credit unions serve the special financial needs of low- and moderate-income individuals. Rather, they serve the same customer base and provide the same financial services as banks.

Because of the tax “subsidy,” the banks reason, credit unions are given an unfair competitive advantage over banks.

Besides, according to the ABA, eliminating the tax exemption would contribute an additional $10 billion to federal government coffers over the next five years.

The Credit Union National Association (CUNA), the major credit union lobbying group, counters that credit unions continue to serve their historic “special mission” of “promoting thrift and providing access to credit for provident purposes to their members, especially those of modest means.”

It asserts that benefits to members in the form of lower fees, lower loan rates and higher deposit yields amounted to almost $6 billion in 2012.

CUNA also claims that ending the tax exemption “would likely lead to the elimination of many, if not most, credit unions.”

For me, though, the clincher in the argument is the special ownership structure of credit unions.

Unlike banks, credit unions are owned by those they serve, not by unrelated stockholders. They’re mutual, cooperative businesses, not businesses operating independently – and for the profit – of their owners.

Members already pay taxes on the dividends they receive from their credit unions. Taxing the credit unions themselves would be taxing the same income twice.

Of course, the outcome of this fight won’t turn on the merits, but on whose well-funded lobbyists are most effective in twisting the arms of regulators and legislators.

But it would be nice if the banks didn’t get their way in Washington.

Just this once.

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