CRS report shows tax 'cost' figures do not reflect real-life impact

October 15, 2015

WASHINGTON (10/15/15)--The Congressional Research Service (CRS) issued a new report on "Tax Reform Limited to Corporations and Businesses," an umbrella topic under which the credit union tax status could fall. CRS is a component of the Library of Congress.

The report makes no recommendations about tax policy. It lists corporate tax categories that could have impacted the U.S. Treasury by $1 billion or more in FY2014. Out of 25 industries listed, the credit union tax status, whereby their not-for-profit business model exempts them from federal income tax, was down at 16.

Although it is not uncommon for the CRS to simply update an earlier report and issue a revised number, CUNA Chief Advocacy Officer Ryan Donovan said Wednesday that it is important to note that this is a new report--one with an important new footnote.

The footnote reflects a CUNA argument that the tax "cost" figures do not reflect the real-life impact of changing a tax policy.

"A problem with a number of tax estimates prepared by the government," explained Donovan, "is that they are static and don’t account for the follow-on effects of human behavior."

In other words, according to Donovan, the projection for adding a new tax for credit unions in 2014 could well have a much lower value in subsequent years and not yield the revenue projected because credit unions will behave differently under different circumstances.

“This is something that we have consistently raised with staff of tax-writing committees and the administration over the years. It is refreshing to see our view acknowledged in a document that Congress will use to evaluate the impact of various expenditures,” Donovan said.

While the report reflects the CUNA argument, Donovan points out that the strongest argument for the credit union tax status remains the fact that credit unions are member-owned financial cooperatives with a mission of promoting thrift and providing access to credit for provident purposes.

“The reason credit unions are tax exempt--our structure and our mission--hasn’t changed," he said. "And, neither has the fact that credit unions fulfill that mission every day. As a result, the credit union tax status remains one of the best investments the government makes in its citizens.”