In Springfield, Missouri in August, President Donald Trump laid out the core motivation of his comprehensive tax plan: fairness.
If Congress and the administration are serious about making America’s tax structure fairer, their first action should be to end the free ride enjoyed by large credit unions at the expense of banks and taxpayers.
While banks are slapped with an average tax rate of nearly 30 percent, credit unions aren’t taxed a dime on the money they make. Even credit unions with billions of dollars in assets don’t forfeit a penny to Uncle Sam. That, even though they compete head-to-head with banks and often provide exactly the same services.
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The banking industry that is the lifeblood of the North Carolina economy gets stuck with massive tax bills while credit unions are showered with corporate welfare. That comes courtesy of Congress and American taxpayers.
The Tar Heel state is well known as the banking capital of the South, but five of the 15 largest financial institutions in North Carolina are credit unions that don’t pay taxes.
With more than $35 billion in assets and $1.1 billion in annual revenue, the Raleigh-based State Employees’ Credit Union ranks among the biggest financial institutions in America – far bigger than heavily taxed small local banks with which the giant credit union often competes.
Even more, the president of State Employees’ Credit Union raked in $894,000 in 2015. A total of 157 employees make more than $100,000 a year … and that’s while working at a “non-profit.”
While State Employees’ Credit Union was able to avoid taxes, it slapped its members with $722 million in interest charges and $133 million in customer fees, according to IRS documents.
This arrangement dates back several decades. During the Great Depression, Congress exempted credit unions from taxes in the hopes that encouraging customer-owned neighborhood savings and loan clubs would replace failed banks in underserved areas. Back then, it made sense to allow credit unions to operate as nonprofits. Now, it’s beyond time to end it.
There are almost 300 credit unions in America with more than $1 billion in assets each. There is no reason these monster financial institutions should enjoy the same tax-free status as soup kitchens, Goodwill and disaster relief charities.
Today there are plenty of stable, government-insured banks to go around, even in rural areas. And the growth of online banking means big, tax-dodging credit unions are dinosaurs that need to be phased out.
In fact, sometimes it seems the only people who benefit from big non-profit credit unions are their well-paid CEOs. In Waynesville, where the average annual household income is $28,296, the CEO of Mountain Credit Union collects a jaw-dropping $423,000 a year. The president of Members Credit Union in Winston Salem pockets $351,000 annually. Greensboro’s Summit Credit Union pays its CEO a $240,000 salary. That’s the new 1 percent.
With handsomely paid CEOs and hundreds of millions of dollars in assets, we must stop pretending enormous credit unions are charities in need of preferential treatment from Washington.
If President Trump and members of Congress want to signal fairness in the new tax code, they should start by eliminating the unfair and indefensible corporate welfare big credit unions receive as a result of their non-profit status. That would go a long way to match rhetoric with reality.
Yaël Ossowski is a Concord native and deputy director of Consumer Choice Center.