The tax treatment conveyed on credit unions continues to serve the purpose for which it was created and is one of the best investments that the government makes in its citizens, concludes a new white paper from CUNA on the credit union tax status. CUNA released the white paper to show the numerous benefits realized by Americans due to credit unions’ presence in the market, and how any change to the credit union tax status would result in a significant loss of those benefits.
“Taxing credit unions would result in negative consequences for savers and borrowers, the most severe of which would be the erosion of a credit union option for millions of Americans. If taxed, a significant number of larger credit unions would likely convert to banks and an equally significant number of smaller credit unions would likely liquidate,” the paper reads. “The remaining credit unions would have to pass the burden of taxation through to their members because they are wholly owned cooperatives, increasing the cost of accessing mainstream financial services.
These benefits to members and non-members totaled nearly $16.5 billion in 2018, greatly exceeding the loss in federal revenue—estimated by the Joint Committee on Taxation to be $1.8 billion in 2018—that would result from imposing new federal income taxes on credit unions.
Taxing credit unions would offset 0.04% of federal government spending in 2018, funding the federal government for 3.8 hours.
CUNA estimates that in 2017 credit unions generated approximately $12.2 billion in federal taxes and $7.4 billion in state taxes. Additionally, credit union members pay personal income tax on both the proceeds distributed by credit unions and the interest the members earn.
Credit unions members paid an estimated $1.5 trillion in state and federal taxes in the most recent tax year.
Changing the credit union tax status would lead to many larger credit unions likely converting charters to operate as banks, while many smaller credit unions would likely be forced to merge or go out of business.
“Imposing new taxes on credit unions would thus cost credit union members and the economy as a whole far more than the amount of additional dollars they would be paying in taxes,” the paper reads.
It also contains several insights into the credit union movement, including: