I’ve been a little surprised by the extent of so many commenters’ disagreement with my entirely reasonable assertion, posted here earlier this week, that credit unions should pay income taxes the same way the banks they compete against do. Credit unions essentially do the same thing banks do, after all: they take in deposits, make loans, and provide other financial services. And the “common bond” that is supposed to link credit union members has been made so lax that a number of credit unions have been able to grow into sizable institutions aiming to serve the general public. Simple fairness says that these institutions ought to be paying income taxes.
But as I say, some readers aren’t buying it. They raised a number of objections, few of which, truth be told, I found especially convincing. Here’s a sampling of those comments, with my responses:
“Here is great reason to not tax credit unions: CONTINUED GREED BY BANKS IN MANIPULATING AMERICANS”
TKB: Huh? Big banks may be evil or not—certainly a few are run by less-than-utterly-competent managers, I’ll grant you that. The vast majorityare run by outstanding managers. But what does any of this have to do with whether CUs ought to be paying taxes or not? Credit unions are essentially for-profit entities. They tend to do a very good job serving their members. If banks are as evil as you say, CUs’ comparative virtue would be an additional competitive advantage—which means they have even less reason to rely on their non-taxed status.
“I trust the credit unions more than I trust [Goldman Sachs]. The ‘little people’ need credit unions.”
TKB: Actually, the preference among many consumers for credit unions over banks goes unremarked-upon too much. But the numbers are stark. The American Customer Satisfaction Index reports, for instance, that consumers give banks an overall a satisfaction score of 76, on a scale of 1 to 100. The similar score for credit unions is 85. So, yes, when this reader says he trusts credit union more than Goldman, I believe him. But that doesn’t say anything about why CUs’ should keep their special privileges. No one’s arguing that credit unions be abolished. Just that they pay income taxes.
“The truth is, credit unions do pay taxes. Yes, they are exempt from corporate income taxes, but to say they pay no taxes just isn’t true.”
TKB: I have no clue what this individual is talking about. I didn’t say CUs pay no taxes. I assume there are property taxes and excise taxes they do pay. Just because CUs pay those taxes is no reason they should be excused from paying taxes on their income, the way their competitors do.
“What about an in-between solution. Small, well-defined common-bond CUs pays no taxes. Large CUs with very broad bonds pay taxes.”
TKB: Actually, I kind of buy this. Credit unions that are clearly keeping with the industry’s original purpose—people with a narrowly defined common bond banding together to help each other—could be left alone as a compromise. Credit unions have a long and honorable history, both here and in Europe. I’m not so wild-eyed a reformer as to want to tinker with those traditions for no practical reason. And the amount of tax revenues small credit unions would generate would be immaterial. But credit unions who’ve exploited lax rules to morph themselves into de facto full-line banking institutions should be treated like the profit-chasing institutions they’ve become. Which is to say, they should pay taxes on their income, just like the big banks they compete against do.
As I say, this shouldn’t be a difficult issue. The playing field needs to be leveled.
What do you think? Let me know!