ARTICLE
by Scott Hodge President Emeritus & Senior Policy Advisor Tax Foundation January 2024 Read the full article at Credit Union Tax Treatment: Details & Analysis | Tax Foundation Key Findings • Credit unions are tax-exempt nonprofit financial institutions that were originally organized to provide lending and saving services to low-income working and rural households • The Credit Union Act of 1934 set out the basic rules governing the “field of membership” and the “common bond” that dfined credit union membership • Over the past decade, the number of credit unions has declined by 30 percent, but the amount of credit union assets has more than doubled, from $1.02 trillion to $2.17 trillion. • Federal credit unions are a special class of nonprofit organizations that do not have to file a Form 990 tax return, which makes them less transparent and accountable than other nonprofits. State credit unions do have to file a Form 990 tax return. • Credit unions benefit from both a tax subsidy and a nonprofit subsidy. The tax subsidy is roughly $3 billion annually, but studies find the combined subsidy is many times the tax subsidy, as much as $21 billion annually. • Although credit unions are supposed to focus on people who are “underserved” and of “modest means,” they are not required to collect data or report on their progress in meeting this mission. Studies show that credit unions increasingly serve upper-income families and serve a smaller share of low-income customers than banks. • The twin recessions during the early 1980s showed the vulnerability of the credit union business model. Since then, lawmakers have repeatedly relaxed membership rules and expanded the types of financial services credit unions can offer, so much so that credit unions look and act more like banks. • Credit unions are now competing so successfully against banks that they are actually buying banks to further expand their membership and services. • Mobile and online banking have made the rules governing the field of membership and common bond anachronisms. Some credit unions have no membership rules—anyone can become a member. • Fairness and equity demand that credit unions be put on the same tax footing as the banks they compete with. In an era of $2 trillion deficits, subsidizing credit unions is a luxury taxpayers can no longer afford. Read the full article at Credit Union Tax Treatment: Details & Analysis | Tax Foundation
by Scott Hodge President Emeritus & Senior Policy Advisor
Tax Foundation
January 2024
Read the full article at Credit Union Tax Treatment: Details & Analysis | Tax Foundation
• Credit unions are tax-exempt nonprofit financial institutions that were originally organized to provide lending and saving services to low-income working and rural households
• The Credit Union Act of 1934 set out the basic rules governing the “field of membership” and the “common bond” that dfined credit union membership
• Over the past decade, the number of credit unions has declined by 30 percent, but the amount of credit union assets has more than doubled, from $1.02 trillion to $2.17 trillion.
• Federal credit unions are a special class of nonprofit organizations that do not have to file a Form 990 tax return, which makes them less transparent and accountable than other nonprofits. State credit unions do have to file a Form 990 tax return.
• Credit unions benefit from both a tax subsidy and a nonprofit subsidy. The tax subsidy is roughly $3 billion annually, but studies find the combined subsidy is many times the tax subsidy, as much as $21 billion annually.
• Although credit unions are supposed to focus on people who are “underserved” and of “modest means,” they are not required to collect data or report on their progress in meeting this mission. Studies show that credit unions increasingly serve upper-income families and serve a smaller share of low-income customers than banks.
• The twin recessions during the early 1980s showed the vulnerability of the credit union business model. Since then, lawmakers have repeatedly relaxed membership rules and expanded the types of financial services credit unions can offer, so much so that credit unions look and act more like banks.
• Credit unions are now competing so successfully against banks that they are actually buying banks to further expand their membership and services.
• Mobile and online banking have made the rules governing the field of membership and common bond anachronisms. Some credit unions have no membership rules—anyone can become a member.
• Fairness and equity demand that credit unions be put on the same tax footing as the banks they compete with. In an era of $2 trillion deficits, subsidizing credit unions is a luxury taxpayers can no longer afford.