There's a saying that elections have consequences, and the recent political earthquake will definitely have more than its share. Based on early reports from Capitol Hill, for the first time in 30-plus years there is a real chance that comprehensive tax reform will move through Congress and become law. And while there is no congressional proposal on paper targeting the credit union tax exemption, you can be sure that 2017 will feature more intense banker attacks as Congress puts the tax code on the table and begins work on overhauling the 74,608-page document.
Why will next year be any different than the false starts on taxation we've seen in recent years? Consider the following developments that have occurred in the days since the election of a Republican, Donald Trump, and retention of Republican majorities in both chambers of Congress:
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Both House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell have made public comments about using a maneuver called the Budget Reconciliation process to pass big, controversial reforms next year. The Budget Reconciliation is expected to be the vehicle because it moves through both chambers under expedited rules and only takes a simple majority to pass.
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Tax reform is one of the most frequently mentioned issues to be dealt with in a Budget Reconciliation bill, second only to the effort to "repeal and replace" Obamacare (which was also passed via a reconciliation bill in 2010). House leadership staff say that a specific plan has already been agreed upon – there will be two Budget Resolution bills next year. The first would be in January and February, aimed at repealing most of Obamacare. The second would be introduced in the spring and would be a broad tax reform bill.
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In an indication of the central place that tax reform will occupy in the next administration, Congressman Devin Nunes (R-Calif.) was named to the executive committee of the Trump transition team. His name should sound familiar: Nunes, a respected senior member of the House Ways and Means Committee, was the author of a tax reform proposal earlier this year that explicitly protected the credit union tax exemption. His prominent role in the Trump hierarchy is a definite plus for credit unions.
These 2016 signs point to a 2017 congressional agenda featuring tax reform. Credit unions should take advantage of this gift of an early warning to prepare. Here are a couple of suggestions:
First, step up contacts with key players on Capitol Hill. This includes leadership in both chambers, plus every member of the House Ways and Means and Senate Finance Committees. Republicans will be most important, but it would be a mistake to not involve Democratic members as well. A House Ways and Means Committee Republican staffer told me that he had more than 40 meeting requests from tax lobbyists during the first week of the Lame Duck session of Congress – the fabled "Showdown at Gucci Gulch" (the name given to the spectacle of tax lobbyists circling the tax committees during the 1986 rewrite) may be in for a rerun.
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In that context, it's not surprising that word is beginning to circulate on Capitol Hill that bankers have approached the Trump transition team with appeals to eliminate the credit union tax exemption. According to one Hill source, the banker attack goes as follows: "We have no problem with small credit unions, but the mega-credit unions are so bank-like that they don't any longer warrant an exemption." There's no word on how the Trump team reacted, but you can be sure that this is not the last time this particular line of argument will be trotted out by the bank lobby.
Second, conduct an honest assessment of where we are on the tax issue with these key lawmakers. "The Congressman meets with us every year at GAC" is not an indication of support. I strongly suggest credit unions and their trade associations compile information on statements that each lawmaker has made on the tax exemption, connections and relationships that the lawmaker has with us and with bankers, and campaign contributions to the member from both credit unions and banks. This is critical information that will show where potential friends and adversaries are.
Third, be ready. There is no bill, and I don't recommend any kind of grassroots action right now. But I am a believer in getting credit unions ready for what could be a quickly developing threat on the Hill. Follow what's going on, and make plans for what might be needed if the credit union tax exemption is threatened. The legislative process is an evolving one, and the absence of a specific tax provision targeting credit unions in a first draft of a bill doesn't mean we're out of the woods. This will be something we have to be on top of from the start of the 115th Congress until a tax bill is actually signed into law.
If a tax fight begins in earnest, credit union political skills will be tested. We will need to deploy all possible resources: Financial, media, grassroots, legal, etc. in a way reminiscent of the Campaign for Consumer Choice in 1997 and 1998. The arguments credit unions have in their favor are strong, but the political environment will be dangerous.
As basketball coach Bobby Knight said, "You have to be in position to be in position," and the potentially fast-moving nature of this tax situation requires our preparation for a fast-moving response.
John J. McKechnie, III is Senior Partner for Total Spectrum. He can be reached at 202-544-9601 or [email protected].
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