Pub. 1 2013 Issue 3

www.uba.org 4 T heir lobbyists in D.C. are scurrying about, trying to whip up all sorts of indignation but their members aren’t responding like usual, and neither are members of Congress. The behavior of these massive, multi-bil- lion dollar institutions is finally catching up to them. They have systematically walked away from everything it means to be a real credit union. And now the country is in deep debt trouble, and they are finding it difficult to hide. In the past all they had to do is cry banker: “The big, bad bankers want to tax credit unions out of business in order to elim- inate competition and force everyone to use a bank.” But this time, the questions about their tax status aren’t coming from bankers and no one is buying their claim that they would wither away and die if they had to pay taxes like every other business in America. But here’s their biggest problem. By opening up their membership to anyone who breathes and is sometimes vertical, they have destroyed the “common bond” or “union” amongst their members. Real credit unions on the other hand, where members share some meaningful affinity or connection, have many of the same political characteristics of a labor union. Members rally to defend the common interests of their union. However, there is no common bond at these large, bank-like credit unions and the only tie most members have is the auto-loan they got in the finance office of an auto dealership. This distinction isn’t lost on members of Congress either. They have big issues to deal with. The country is $17 trillion in debt and our tax policy is stifling the eco- nomic growth necessary to grow out of it. That leaves them with some very difficult choices, most of which are much more painful than taking away a tax subsidy from highly profitable, billion dollar finan- cial institutions that just received massive taxpayer bailouts. As I write, members of the House and the Senate tax-writing committees have their heads down and are working hard on comprehensive tax reform. Everything is on the table. The goal is a broader base and lower, more competitive rates. It’s no wonder the lobbyists for the large, bank- like credit unions are in a panic. Their arguments are weak and their political threats are miniscule compared to many of the other issues on the table. This sort of tax policy discussion only comes around every 20-30 years. It’s im- portant to every American that Congress gets it right. And given the important role banks and real credit unions play in the overall economy, it’s particularly import- ant to restore balance in the financial sector so we can move forward based on free market discipline, not artificially in- duced government distortions. Failure to do so will change the American financial system forever. The real credit unions will continue to be gobbled up by the large, bank-like ones and the banking industry will likewise continue to consolidate as it looks for economies of scale in order to try to compete with the government subsi- dy. The result: fewer, larger institutions, not a pretty picture for anyone. n T he B ottom L ine By Howard Headlee, President Credit Unions in a Panic The large bank-like credit unions are in a panic. Their ridiculous tax exemption is on the chopping block and the bankers didn’t even put it there. The fact is, many of these consumers don’t see any difference between these large credit unions and a bank, and they are a little surprised when they learn that these multi- billion dollar financial institutions don’t pay any taxes on the millions of dollars in profits they retain each year.