The financial world is in an everlasting state of change. As a new political administration has begun enacting its agenda for the United States, many new ideas and proposals have been at the forefront of daily conversation. Various news outlets have been reporting potential changes to regulations, as well as budgetary measures. In each political administration, there is a push to install fresh concepts that align with campaign promises, and principles that leaders envision will best serve the public. One proposal in particular has received considerable attention within the credit union space.
Credit unions have been a long-standing financial institution for many communities across the world. They serve as a pillar in the community, offering various financial products and services to consumers commonly at more favorable terms and conditions. These not-for-profit financial institutions focus solely on members of their cooperatives. This is fundamentally different in contrast to traditional banking options, which typically prioritize shareholder profits. However, the proposed legislation could place credit unions in a precarious position.
Attack on tax exemption
Currently circulating in the United States House of Representatives Ways and Means Committee is a memorandum detailing potential budget propositions that cover a vast amount of different policy areas. One in particular is eliminating the Credit Union Tax Exemption. The memorandum states that while credit unions are exempt from federal income taxes on their earnings, a suggestion to end the exemption would subject credit unions to the federal income tax.
Presently, credit unions still pay taxes and fees to the government, including payroll and property tax. Yet, this elimination of the exemption from federal income taxes on their earnings would potentially promote $30 billion in savings, over a 10-year period.
This proposal would serve as a drastic shift in the credit union industry as the exemption has been established for nearly a century. Signed for the purpose of promoting thrift among community members and creating a source of credit for provident purposes, the Federal Credit Union Act was passed into legislation by Franklin D. Roosevelt in 1934. This came with a collection of socioeconomic policies to help the United States during harsher financial difficulties.
The Federal Credit Union Act of 1934 continues to fulfill its purpose in assisting the national system of cooperative credit and bringing stability to the credit structure for all citizens in the United States. Thus, credit unions utilize tax exemptions to minimize expenditures, which return profits to the members they serve. The threat of eliminating this tax exemption could ultimately harm the consumers who participate in these member-owned cooperatives.
Fighting back
Nevertheless, all hope is not lost on the tax exemption. There are a few key organizations driving the initiative and promoting awareness on the topic so that members of Congress retain the tax exemption. Among them are organizations such as America’s Credit Unions and the Defense Credit Union Council. These organizations have sent letters to Congress officials to express their strong opposition to the proposal to eliminate the tax exemption.
“Credit Unions take their tax status seriously and use it to help over 142 million Americans who are credit union members. These benefits arise from member-ownership and the absence of stockholders demanding a market return on investment, and they take the form of lower loan interest rates, higher savings yields, and fewer fees,” states a portion of a letter from America’s Credit Unions.
The Defense Credit Union Council also offered its voice in declaring, “This exemption is not a special privilege but a recognition of the not-for-profit, member-owned, and community-focused structure of credit unions, one that has provided immense economic benefits to consumers, especially military families, over the last century.” These strong statements reflect the organizational dedication to preserve this tax exemption.
Further, examples of these letters can be found on each of the organization’s websites, as well as a full website dedicated to educating consumers on the threat of this tax exemption elimination. Consumers can find out more information by visiting Don’t Tax My Credit Union, where America’s Credit Unions has launched this defense campaign.
As the proverbial fight has just begun, the elimination of the tax exemption status is a genuine possibility. We are currently in a wait-and-see period in terms of all policies concerning the country, as agendas are simply in their infant stages. However, that does not mean individuals have to stay on the sidelines. If you so choose, you can make your voice heard by respectfully contacting government officials or taking action with public petitions.
America’s Credit Union has made it easier than ever before to allow your voice to be heard. The website Don’t Tax My Credit Union has a “Take Action” button on their site where individuals can compose a prewritten script, where anyone can fill out a form and send messages to lawmakers. This is an important and stress-free way to support the movement.
Ultimately, time will tell what these budgetary reconciliation meetings result in, but change may be on the horizon.
