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Help Protect Your Credit Union: Preserve the Credit Union Tax Status

Some bankers and their trade associations are asking legislators to tax credit unions. The truth
is, a tax hike on credit unions is a tax hike on all American consumers.

You may not realize this, but your credit union doesn’t pay federal (corporate) income tax.

Here are just a few reasons:

• Credit unions are not-for-profit, democratic, financial cooperatives, owned by their members.
• Credit unions’ boards of directors serve as unpaid volunteers, elected by members.

Credit unions were created to provide financial services in a democratic, not-for-profit, cooperative
manner—that is, with member ownership and control. Those characteristics are the foundation of
the tax exemption.

Early in the history of credit unions, the U.S. attorney general declared state-chartered credit
unions exempt from federal income taxes because they were “organized and operated for mutual purposes [in which an organization’s members share in the profits and expenses] and without profits.”

Later on, in the 1930s, legislators passed a law to exempt federally chartered credit unions from
federal income tax for the same reason. Today, legislators continue to maintain that status because credit unions, while growing and changing, still operate in this unique way.

Credit unions’ boards of directors serve as unpaid volunteers, elected by members. Credit
unions return all excess income to members, in the form of higher deposit rates, lower loan rates, and lower fees. Credit unions don’t need to create profits to pay stockholders, as do banks.

The amounts banks pay stockholders dwarf their tax bills: Over the past five years, banks have paid 47% more in dividends to stockholders than they have paid in income taxes.

All consumers benefit
All taxpayers, whether members or not, benefit from the presence of credit unions in the marketplace. Credit union competition helps keep bank and savings and loan prices lower. For example, credit unions offering credit cards charge an average one to two percentage points lower interest than other lenders. Imagine how expensive other lenders would make credit cards, or auto loans, if they didn’t have to compete with credit union rates.

The American Bankers Association says the tax exemption gives credit unions an unfair and
unwarranted privilege that puts banks at a competitive disadvantage. In 2008 alone, bank assets grew more ($1.14 trillion) than credit unions have grown since they began operating in the U.S. more than 100 years ago: Bank assets grew to $12.3 trillion at the end of 2008. Total credit union assets at year-end 2008 were $866 billion.

Tax repercussions
If credit unions paid income tax, the contribution to state and federal treasuries would make not
one penny difference in the taxes you pay as an individual. But the effect such taxes would have on how much you pay for credit union loans for cars, education, and houses, or the dividends you earn on credit union savings, would be significant.

Just as banks pass along their tax payments in fees and interest rates, credit unions would have
to pass along that expense to members, also in the form of higher fees, higher loan rates, and
lower savings dividends.

Credit unions, if taxed, also would have to take the money from funds otherwise dedicated to
reserves—the cushion protecting all members and the credit union from economic shifts. Again,
not-for-profit credit unions aren’t like banks, which have profits aplenty.

Help protect your credit union and encourage Congress to preserve the credit union tax status.

Click here to send an email to your legislators. Once you’ve entered the site you will need to register (on the right side of the page) so the system can find your legislators.