Credit unions fighting to retain their tax exempt status cleared their first hurdle Thursday, as House Republican leaders unveiled tax reform legislation that retains the exemption.
The 429-page bill makes a myriad of changes in the tax code, with the intention of providing tax cuts to many taxpayers.
"As of now, the credit union tax status remains unchanged in this bill and the bill looks good from a credit union perspective, but this is an ongoing process and change can happen anytime," said CUNA President/CEO Jim Nussle, who as a House member from Iowa, was a member of the tax-writing House Ways and Means Committee.
NAFCU President/CEO B. Dan Berger said that the bill reflects the recognition by House Republicans of the economic value of the credit union tax exemption..
"We're staying in close contact with lawmakers in both the House and Senate – especially those on the House Ways and Means Committee and Senate Finance Committee – to ensure the preservation of credit unions' tax exemption and to look out for credit union interests as this process continues to unfold," he said.
Credit union trade groups have been lobbying hard for retaining the tax exemption, calling it a "life and death" situation for those financial institutions.
Banking groups, such as the Independent Community Bankers of America and the American Bankers Association, identified the elimination of the tax exemption as one of their highest priorities in any tax legislation.
CUNA officials said they are scouring the bill for any other provisions that may affect credit unions.
There are provisions in the bill that would affect tax exempt organizations.
For instance, one provision would subject a tax-exempt organization to a 20% excise tax on compensation in excess of $1 million paid to any of its five highest paid employees for the tax year.
"Tax-exempt organizations enjoy a tax subsidy from the Federal government as a result of the requirement that they use their resources for specific purposes," House Ways and Means Committee Republican staff said, in explaining the provision. "Some may question whether excessive executive compensation diverts resources from those particular purposes."
The House bill is only the starting step for tax reform legislation and language affecting credit unions may be added at any time.
The Ways and Means Committee will begin the process of marking up and amending the tax bill in committee next week.
The House bill would increase the federal deficit by some $1.51 trillion over the next ten years. Some Republicans argue that number would drop drastically since the tax cuts would generate economic growth.
However, some deficit hawks have argued that tax reform legislation should be deficit neutral and may search for ways to make up for the lost revenue.
That is where the credit union tax exemption could be vulnerable.
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