One of the ongoing conversation on Capitol Hill is the extension of the 2017 Tax Cuts & Jobs Act, including how to structure legislation so to “pay for” (as many describe it) the tax cuts.

One revenue raiser that has been proposed is the elimination of the tax exemption for certain credit unions, which would raise an estimated $30 billion over 10 years in additional revenue to the federal government.

In 2018, HLF was a signatory to a letter to then-Chairman of the U.S. Senate Committee on Finance Orrin Hatch (UT) asking the committee to examine “economic distortions that have become evident through provisions in the law over time.”  The corporate income tax exemption granted to credit unions is one such provision.

The Federal Credit Union Act of 1934 granted tax-exempt status to credit unions with requirements that they limit their depositors to groups holding a common bond, such as an occupation, community, or association, and to avoid high-risk, high-reward investments.

But in recent years some of the larger credit unions institutions have eased their membership requirements and accepted customers who do not meet their original qualifications, which they set themselves.

These larger Credit Unions thus appear to be undermining the “common bond” requirement and are operating much more like regular banks.  This creates a market distortion, handing these select few credit unions a competitive edge over smaller community banks that compete for similar customers but are not exempt from corporate income taxes.

Importantly, it would be imperative for any proposal addressing this issue to not result in Congress selectively raising federal revenues or tax burdens.  The broader goal should be to foster broader-based, long-term tax relief and cultivate greater economic efficiency.