May 13, 2012 in Opinion

Con: Only the largest entities will benefit; they’re tax-exempt and exceed their mission

Dawn Justice

Every policy issue that has ever been brought before Congress involves facts, opinions, politics and spin, and Senate Bill 2231 is no exception.

This bill seeks to raise the business lending cap on credit unions. It is being promoted by the credit union industry with plenty of spin and politics, and that makes it hard for the facts to be heard.

Fact: Credit unions don’t pay taxes, so they provide no financial support to our country – a bitter pill for taxpayers during a time of explosive deficits. Congress granted them a tax exemption in 1934 solely because their mission was to serve people of “modest means” with a “common bond.” For serving those populations, they were granted a tax exemption. Today, government reports and other studies (e.g. National Community Reinvestment Coalition) indicate that most credit unions no longer serve just those populations, and it’s the taxpaying community banks that now meet that need.

Is there any hard data that indicates there is unmet loan demand in the market? No. Fact: Surveys of small businesses indicate loan demand is weak as businesses are sitting on the sidelines until the economy stabilizes before investing in business expansions.

Are credit unions close to reaching the cap? No. Fact: An incredible 99.9 percent of credit unions across the country would not benefit from raising the cap. Only one credit union in Idaho is even close to the cap. This reality contradicts the credit union industry’s assertion that access to small-business loans is limited. If it were, wouldn’t most credit unions be close to the cap?

If there is already sufficient access to business loans, doesn’t expanding the credit union cap mean businesses will move from taxpaying banks to tax-exempt credit unions? Yes. Fact: Not paying taxes is a competitive advantage when two industries are competing for the same customers. Every loan that goes to a credit union instead of a bank means no taxes are paid, and the deficit deepens for taxpayers.

How do banks make money? They make loans. Fact: Many banks in Idaho are flush with capital, competing fiercely among themselves for scarce small-business borrowers. Banks want to make loans.

Should taxpayers subsidize small-business loans? No. Fact: Most taxpayers are already struggling in the current economy. SB 2231 would only benefit the 27 largest credit unions in the country (less than 1 percent) that are at or near the spending cap. Small-business loans under $50,000 made by credit unions don’t count toward the cap, nor do Small Business Administration loans. Credit unions that want to expand their business lending can convert to a mutual savings bank charter and pay taxes.

The banking industry has no objection to the small credit unions in Idaho that have largely stayed true to their mission. We oppose the mega-credit unions that are already aggressively engaged in small-business loans but are unwilling to give up the tax exemption they no longer deserve.

One doesn’t have to be an economist to know that an industry subsidized by the federal government will easily out-price one that pays roughly one-third of its revenue in taxes, a typical bank’s tax burden.

If you oppose the government subsidy of an industry that is competing head to head with a taxpaying, private-sector industry, then encourage Sens. Mike Crapo and Jim Risch to oppose SB 2231. If the bill passes, it means all taxpayers will be looking at an even larger deficit and the continuation of a tax exemption that is no longer deserved.

Dawn Justice is the president andCEO of The Idaho Bankers Association.

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