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Fed Meeting Preview and Deposit Rate Forecast - March 15, 2023Banks Pressuring Congress to End Credit Union Tax Exemption
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.
Thanks to DA member shorebreak who posted on the LA Times article in this forum thread and DA member cumulus who posted on the CUNA campaign in this forum thread.
Here we have the banks complaining IN A VACUUM that the credit unions have an unfair advantage over them and that that isolated benefit should be taken away. Perhaps the banks should be just a bit more honest and argue that both banks and credit unions should be under all the same rules, which would serve to take away the banks' benefits, including their far fewer restrictions, such as on to whom they can lend. I believe credit unions must do most or all of their lending to their members. The banks are not so drastically restricted, and that gives them a big advantage over the credit unions, something they carefully structured their argument to avoid mentioning. The banks can lend to pretty much anyone, and even do major commericial lending.
Funny how this dispute has been so controlled by the banks that no one has pointed out how deceptively structured the conversation has been, how controlled by the banks it has been, instead have stayed within the confines of the debate as the banks have defined it.
Do not let the banks control the argument -- call them on their deception, and demand that they lose all the benefits they have that the credit unions do not have. That is, put it in an honest context, not the deceptive context the banks have created. With that, the banks would certainly back down -- as they know why they make so much more money than the credit unions.
Credit unions, in general, need to do more for "savers". It's a 2 way street, having both borrowers and savers in it.
So yes it is a borrowers market at the moment and it will become a savers market as market rates rise and financial institutions follow with higher savings rates. Until than it's a great time to get a car loan or mortgage.
Funny how the Too-big-to-fail banks ALL GOT BAILED OUT....
now they offer virtually NO interest on any of their saving and checking products...
If it weren't for the credit unions and their advantageous rewards checking accounts
savers would have nothing to show for their thrift.... Nice, that we live in a world of
NO MORAL HAZARD for the big banks and who they lend to, while the credit unions are largely
serving their communities and have never fundamentally BRoKEN THE SYSTEM!!!!
What a world filled with the relentless GREED of the BIG FOUR... BREAK THEM UP NOW!!!!!
Maybe I missed the press release, but I haven't heard that the Obama administration favors taxing credit unions. So, if you have any direct evidence to support your statement, please cite it.
Read this at: http://articles.latimes.com/2013/jul/06/business/la-fi-credit-union-taxes-20130706
Small insert that Obama is already planning to include such tax:
"Many tax-exempt credit unions have morphed from serving 'people of small means' to become full-service, financially sophisticated institutions," Frank Keating, president of the American Bankers Assn., wrote to President Obama last month.
"The time has come to abolish this exemption," Keating said in the letter, which was part of a blitz that included print and radio ads in the nation's capital.
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.
The exemption cost $1.6 billion this year in taxes avoided and would rise to $2.2 billion annually in 2018, according to Obama's proposed 2014 budget.
Sorry you went through all that 'cut and paste' for nothing. Your claim is false.
http://www.snopes.com/politics/taxes/debtfree.asp
First of all, kindly keep your attitude to yourself. Snide referencences to the President being my "friend" certainly don't lend you any credibility.
Secondly, it took me exactly one minute to discover that everything you say about HR 4646 is a myth. To cite one reliable source:
HR 4646 was first floated in 2004 by one House member, who says it would replace the federal income tax and eliminate the national debt. So far it has gone nowhere.
I'll bet you picked this story up from one of those chain emails that keep circulating among persons with extreme viewpoints.
The plain fact still seems to be that the the Obama Administration expresses no support for taxing credit unions. Furthermore, this idea failed to gain much traction even during the Bush Administration when banks had much more influence in Washington.