CRS Finds No Answer for "Should Credit Unions Be Taxed?"

WASHINGTON-A recent Congressional Research Service report outlines the history of the credit union tax-exemption, the differences between banks and credit unions, and discusses deregulation, but offers no answer to its own question: “Should Credit Unions Be Taxed?” The Aug. 11 report by James M. Bickley, a specialist in CRS’s Public Finance Government and Finance Division, explains how proponents of taxing credit unions complain of an unlevel playing field, while credit unions argue their unique structure and service support the tax exemption. NAFCU General Counsel Bill Donovan said he did not know who requested the report or why, or why the requested would go to CRS rather than the Government Accountability Office. A call to CRS was not immediately returned at press time. However, Donovan said the report does not concern NAFCU. He called the report “a genuine attempt at an impartial description of the lay of the land.” In fact, he pointed out that the report does not offer any recommendation. “It doesn’t appear that there is anything in the pages that follow that would attempt to answer that question,” Donovan said. The report concluded, “In the future, technological change and deregulation will likely further increase competition between credit unions and other depository institutions.It should be noted that thrift institutions were exempt from the federal income tax until 1951. The tax exemption for thrift institutions was eliminated because Congress felt that the relationship between thrifts and their members had substantially changed. In the 1980s, 1990s, and early 2000s, the credit union industry grew more rapidly than other depository industries, and this more rapid growth may continue. Since many believe that an economically neutral tax system requires that financial institutions engaged in similar activities should have the same tax treatment, the income tax exemption for credit unions likely will occasion continuing debate.” According to its Web site (www.loc.gov/crsinfo), Congress established CRS in 1914 for “nonpartisan, objective analysis and research on all legislative issues.”