Thomas' Taxation Remarks Stir Credit Union Taxation Pot; Not a Party Line Issue

WASHINGTON-Since House Ways and Means Committee Chairman Bill Thomas (R-Calif.) expressed his view earlier this month that his committee should hold hearings on the tax-exempt status of certain non-profits, everyone with an interest has thrown their two-cents in. Two top Democratic lawmakers have spoken out recently against any attempt to impose the federal corporate tax on credit unions. House Minority Whip Steny Hoyer (D-Md.) released a statement shortly after Thomas’ comments, which stated, “Credit Unions are tax-exempt because they are focused on service and not on profit. They are owned by their membership and are run democratically.” He questioned, “What exactly has changed that these service-oriented organizations should now be taxed, as suggested by a leading Republican? The truth is, nothing has changed that would merit such taxation – taxing not-for-profit credit unions is still bad for consumers.” Hoyer also warned that he is not the only one opposed to taxing credit unions and pointed to the administration’s support for credit unions’ tax exemption. Additionally, House Ways and Means Ranking Member Charles Rangel (D-N.Y.) has told NAFCU, “I want to maintain the status quo. Credit unions should remain tax-exempt. I see absolutely nothing that would warrant changing the current tax-exempt status of credit unions.” House Ways and Means Chairman William Thomas’ said during a speech to the Federation of American Hospitals earlier this month that he was interested in looking into the value of the tax-preferred status of tax-exempt non-profits, including credit unions. Reports from sources indicate that Republicans on the committee approached Thomas today on the subject, but details beyond that were not available at press time. “Chairman Thomas’ position with respect to credit unions is not a new one and our strategy all along has been that, while we know what his position is and we know that there’s really no changing his mind about that or much of anything, we were going to surround Chairman Thomas with credit union friendly members and deal with it in that way,” CUNA Vice President of Legislative Affairs and Senior Legislative Counsel Gary Kohn told reporters last week. “Subsequent to his remarks,” NAFCU Director of Legislative and Political Affairs Brad Thaler explained, “we have talked with his staff and his staff has assured NAFCU that there is no intention for hearings looking at the tax issue for credit unions. There are no hearings planned at this time.” Kohn pointed out that CUNA President and CEO Dan Mica was elected in the same class as Chairman Thomas, “so Dan has a unique understanding of Chairman Thomas and of what approaches work with him and which ones do not so we’re blessed in that regard to have that kind of understanding of how to deal with the chairman as well.” He added that he expects to see more pro-CU statements demonstrating clear bipartisan support for credit unions’ tax-exempt status. “Chairman Thomas will become quickly isolated in a very public way,” Kohn said. In the meantime, NAFCU President and CEO Fred Becker wrote Thomas last week requesting a meeting to discuss his concerns regarding credit unions’ tax exemption. “While credit unions have, admittedly, evolved over the years to meet the changing financial services needs of their members,” Becker wrote, “their basic structure, philosophy and guiding principles remain the same today as they were when the federal tax exemption was granted to credit unions in 1937.” He pointed out that Congress reaffirmed credit unions’ tax exemption in 1998 and that a Treasury report in January 2001 also concluded that there was no reason to revoke credit unions’ tax exemption. He noted that in 2000, then-presidential candidate George W. Bush told credit unions “.as part of my overall commitment to lower taxes and provide more opportunities for working Americans, I support continuing the tax-exempt status of credit unions.” Additionally, Becker cited a Consumer Federation of America study from last fall, which found that credit unions’ benefits outweigh the costs and banks’ tax breaks are of much greater value. On the other hand, American Bankers Association Chairman C. Kendric Fergeson, also chairman of NBanC in Altus, Okla., jumped on Thomas’ bandwagon. He sent a letter March 8, after Thomas’ remarks, to Treasury Secretary John Snow asking him to reconsider his position supporting credit union tax-exempt status. At CUNA’s Governmental Affairs Conference in February, Snow announced the administration had no interest in taxing credit unions. Fergeson debated State Employees Credit Union CEO Jim Blaine at that same conference. Snow reaffirmed this stance most recently at America’s Community Bankers Government Affairs Conference (See related story page 33). In Fergeson’s letter, he outlines ABA’s support of the administration’s efforts for “free and fair competition.” However, he argues that credit unions, particularly large ones, have become more “mainstream” in modern times and their tax status should be reconsidered. “It is clear that the policy justifications for subsidizing an ever-growing segment of large, diversified credit unions no longer exists,” Fergeson argued. “Given that fact and the increasing pressures on the federal budget, the ABA believes that the Administration should revisit its stance regarding the tax exemption for the new breed of credit unions that bear no resemblance to traditional credit unions serving people of modest means.” [email protected]