Long-time readers of this blog know how helpful credit unions have been in providing top deposit rates. Many of the best CD deals over the years have been from credit unions. Those higher CD rates have been especially important for savers and retirees in recent years as interest rates hit record lows. If bankers get their way, we may see fewer of those CD deals. Bankers and their lobbyists have been pressuring Congress to end the credit union federal tax exemption. According to this Los Angeles Times article:
Bankers long have complained the tax break is an unfair advantage for large credit unions. Now they see an opportunity to get rid of it as lawmakers begin work on a major overhaul of the tax code that is aimed at eliminating many corporate exemptions and lowering the overall tax rate.
It would be very likely that we would see fewer CD deals and other top deposit rates if credit unions lose this tax exemption. According to the LA Times article:
A 2012 economic study commissioned by the trade group found that removing the tax exemption would cost consumers about $10 billion a year through higher fees and interest rates on loans, as well as lower interest rates on savings.
Credit unions are fighting back. In May the Credit Union National Association (CUNA) and its affiliated state credit union leagues launched the “Don’t Tax My Credit Union” campaign and created the website donttaxmycreditunion.org. According to this website:
Unfortunately, the big banks and some in Congress want to raise taxes and impose new fees on 96 million credit union members who represent 40% of all Americans, yet represent only 6% of the assets in financial institutions. And, they want to do this despite the fact that credit unions are not-for-profit and meeting their core mission every day.
The site offers news on this issue along with a form to allow credit union supporters to contact their Congressman.
In my opinion, ending this tax exemption doesn’t make any sense, especially in an environment in which the big banks have so many advantages. In February I wrote about the issue of too-big-to-fail banks after George Will published an opinion piece in the Washington Post which advocated that it’s "Time to break up the big banks". In the article it was mentioned that in 2011, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo held 40 percent of all federally insured deposits. George Will stated that "there is a silent subsidy - an unfair competitive advantage relative to community banks - inherent in being deemed by the government, implicitly but clearly, too big to fail." In my opinion, ending the credit union tax exemption would be yet another win for the big banks.