WASHINGTON — Despite a lot of noise created by the bankers over the credit unions' "tax subsidy" as an unfair advantage, a new Government Accountability Office study shows that banks tax savings are far more than credit unions.
"This study provides conclusive evidence that all the moaning and groaning by the big banks about unfair competition from credit unions is unfounded," Senator Bernie Sanders (I-Vt.), who requested the study, commented. "The big banks' profits are going up and up, as is the compensation of their CEOs, while credit unions have remained focused on providing financial assistance to middle-class and working families. The benefit that Americans get from credit unions outweighs by far the cost of the credit unions' tax-exempt status."
The study also showed that banks' tax deductions totaled $108 billion in 2004 and tax credits tacked on another $200 million. By comparison, the Treasury Department has estimated that the value of the tax-exempt status for credit unions will total only $1.4 billion this year.
Additionally, the GAO study found that banks' and thrifts' net income increased an average of 7% annually over the last decade, while credit unions' net income was up just 3% in the same time period. In 2006, banks and thrifts earned $146 billion compared to $6 billion in retained earnings for the entire credit union industry.
GAO also noted that banks have made illegal maneuvers to evade taxation, like BB&T, which it said evaded millions of dollars in U.S. taxes by establishing illegal tax shelters.
Banks return on average assets has increased since 1993 to 1.27% and thrifts are at 0.96% while credit union assets have remained relatively flat at 0.81%, according to GAO. Moreover, 31% of banks and thrifts are now organized as Subchapter S corporations to avoid paying any corporate income tax.
Sanders also asked about the cost to the American taxpayer for the S&L bailout in the 1980s which came at a price tag of $200 billion in today's dollars. Finally, Sanders noted that the GAO reported that from 1992-2000, compensation for bank CEOs more than doubled.
CUNA President/CEO Dan Mica has said he believes this will put a big ding in banks' arguments to tax credit unions or that they are unfairly advantaged.
Sanders agreed, "Instead of questioning the tax-exempt status of credit unions, which have helped millions of members with lower fees, reduced interest rates, and better service, the American public would be much better served if Congress took a serious look at the escalating fees, economic concentration, and CEO compensation packages that big banks are receiving."
He added, "As documented by the GAO, big banks are right about one thing: there is not a level playing field, but the big banks seem to have the advantage."
NAFCU thanked Sanders for the study, which he requested in conjunction with the group's Annual Conference last year. "In addition, we hope that Congress will keep this report in mind the next time banks complain about credit unions," NAFCU President/CEO Fred Becker commented.
Bankers: Problem is Market-to-Market
Following the GAO report, the bankers' trade associations are reiterating that their argument against the credit union tax-exemption has an "institution to institution" focus and not industry-to-industry, which was how Sanders framed and GAO approached the report.
"We realize a lot of the criticism is directed industry to industry and we've never really had a problem with the entire industry…It's this new breed of credit unions that are nontraditional credit unions," American Bankers Association Spokesperson John Hall commented. It is in the one-on-one marketplace where his members feel the pinch of the unfair competition, he said. "There are thousands of banks that are smaller than this new breed of credit unions."
It is not only size but offerings that determine this "new breed," he noted.
Bob Schmermund, senior vice president of corporate communications for America's Community Bankers, could not have agreed more that the "battle" is taking place locally. He added of the credit union trades' remarks, "Did they miss the part about thrifts under $100 million losing money?" These are the institutions particularly feeling the unfair tax advantage from credit unions while also competing with other financial services providers, including larger banks, he contended.
Regarding the fact that credit unions' tax-exemption is nowhere near even the banks' write-offs, Hall said "It's about fairness. It's not about amounts."
Schmermund pointed to credit unions' "hypocrisy" campaign against banks' work to achieve a level playing field. CUNA and NAFCU have both been calling the banks duplicitous for seeking to tax credit unions while consistently working to expand their own tax relief. "The most duplicitous act here is that every single congressional session… [credit unions] are aggressively seeking an expansion of powers at the same time trying to argue for the tax-exemption for a $700 billion industry," he stated.
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