Don’t tax credit unions. This is the message of a letter – sent jointly by the Heartland Institute, Americans for Tax Reform and the League of United Latin American Citizens – to members of a Presidential group – the President’s Economic Recovery Advisory Board, or PERAB – tasked with considering various tax reform ideas.
The letter argues that PERAB’s proposal to tax credit unions will be bad for the economy, bad for pocketbooks, and won’t bring in much tax money:
To begin with, any tax imposed on credit unions would have a direct impact on Americans’ pocketbooks. Credit unions often charge lower loan rates than banks, distribute billions of dollars in dividends to their members and, by virtue of their competitive position, reduce costs for people who do not do any direct business with them.
New taxes on credit unions, furthermore, would likely damage the overall economy. Relative to banks, credit unions have emerged from the economic crisis with reasonably little damage. Additional taxes would threaten an already shaky depository system. There’s simply no reason to impose them.
Changes to credit unions’ tax treatment, in addition, would undermine the purposes for which credit unions exist. Although they provide many similar or identical services, credit unions are not the same as banks. They are democratically governed, member-owned cooperatives that serve limited fields of membership and, quite often, provide credit and banking services that would not otherwise be available.
Finally, the proposal would simply not raise very much revenue. The $1.5 billion increase in revenue you suggest would come from increasing taxes ought to be weighed against the $7.5 billion that credit unions save for Americans and the significant collections in taxes on credit union member dividends. Quite simply, the revenue likely to be collected—roughly 1/10th of 1 percent of the U.S. GDP—is not worth the enormous burden a new credit union tax would place on the overall economy.