Don't tax credit union members

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By Patrick S. Jury


Iowa credit unions are working hard to provide quality financial services to more than 1 million Iowans. As not-for-profit alternatives to for-profit banks, credit unions are able to provide better rates on loans, pay higher rates on savings and charge lower fees to members.

In 2012, credit unions saved Iowans more than $76 million in better rates and lower fees.

Consumers benefit by having credit unions in the financial marketplace. While Iowa credit unions make up only 10 percent of this market, this competition creates a better environment for consumers and keeps bank fees from getting even more outrageous.

The bankers do not like this competition, and are attacking the credit union tax status, claiming that increasing taxes on credit unions would help solve America’s fiscal woes. Bankers want to raise the taxes of Iowa’s credit union member owners.

What makes bankers’ claims more outlandish is that they are using the national economic challenges as the reason to tax credit union members. After TARP and taxpayer bailout, the idea that the bankers would advocate for an increase of taxes on any Iowan is self-serving.

Bankers do not understand the credit union model. Credit unions are exempt from federal income tax because of our not-for-profit, cooperative ownership structure and subsequent member control of our institutions through volunteer, elected boards. Bankers ignore the fact that Iowa’s state-chartered credit unions pay significant taxes. These taxes include a moneys and credits tax on their growing reserves, payroll taxes, sales taxes, and property taxes.

Banker criticism of the credit union tax status is highly hypocritical in light of the substantial tax loopholes from which they benefit. In Iowa, 60 percent of banks do not pay federal taxes because they choose to structure as Subchapter S corporations. As of June 2012, there were 201 Subchapter S banks in Iowa avoiding $52.8 million in federal taxes.

Increasing taxes on credit unions increases taxes on Iowa Credit Union members. Credit unions would have to pass along the increased expense to their members in the form of higher fees, higher loan rates and lower savings dividends. There would be no incentive for credit unions to remain not-for-profit and our economy would lose the only sector of the financial industry that is not driven by profit, but, instead, a dedication to serve its members.

Credit unions are the best way for consumers to conduct their financial services. If banks thought that operating as a credit union was advantageous, they would convert to the credit union model. However, that would require bank stockholders to relinquish their profits and turn control of the institution over to their customers. That won’t happen any time soon.

Iowans deserve choice and competition in their financial services. Credit unions offer a better option for individuals, families and small businesses to keep more of their hard-earned money. Increasing taxes on credit unions takes this option away from consumers, and will drive up the cost of financial services for all. Banks should stop the false rhetoric about credit unions and put consumers before profits.

l Patrick S. Jury is CEO/President of Iowa Credit Union League. Comments:,

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