It’s time to reform tax exemptions

The impact of tax-exempt organizations on tax revenues needed to fund our schools, roads, defense and other priorities has received some long overdue attention.

While most non-profits provide a valuable service to communities, the few who abuse the system are hurting everyone else.

A Des Moines Register's March 20 editorial makes the problem clear: 'More than 1.5 million organizations are exempt from taxation in this country. Federal, [state] and local governments lose billions of dollars in uncollected revenue. This contributes to the national deficit, results in cuts to city and county services and forces the rest of us to pay more in taxes to compensate. What exactly are we buying? Non-profits do not have to prove their worth..”

The credit union industry is a perfect example of this problem.

Credit unions do not pay income taxes, and have no statutory requirement to ensure their profits are passed onto their members.

And the largest ones are extremely profitable. Iowa's credit union industry is now dominated by a handful of large financial institutions.

In 2014, the top 10 largest Iowa credit unions accounted for 75 percent of the industry's $13.1 billion in assets and for 84 percent of the industry's $133.2 million in profits. So, nearly 85 percent of the annual tax subsidy is taken by 10 large, profitable Iowa credit unions.

Despite their not-for-profit status, credit unions are not required to provide a public benefit in exchange for their subsidy. For example, an examination of Iowa credit unions' 2013 Home Mortgage Disclosure Act (HMDA) data shows that they provided less than 1 percent of their loans to low-income borrowers.

In fact, the very people credit unions are supposed to serve end up paying more taxes than credit unions.

There is something wrong with a tax system where an Iowa family of four pays on average $11,402 in federal income tax, and a $2.5 billion Iowa credit union with $38 million in profits pays no federal income tax. It's time for meaningful tax reform.

' John Sorensen is president and CEO of the Iowa Bankers Association. Comments: jsorensen@iowabankers.com