The Issue or Non-Issue of Credit Union Income Taxation

Credit unions are exempt from certain federal income taxes, and banks are not happy about it. The banks argue the income tax exemption was reasonable when credit unions were small, were composed of members with a more restrictive 'common bond' (employees of one organization, geographic limitations, etc.) and stuck to small consumer loans to people who could not obtain credit elsewhere. Credit unions now have a much less restrictive membership base and make much larger loans to both individuals and businesses. Since they operate like banks, the banks argue, they should be taxed like banks. 

Credit unions respond that bankers have been attacking them for their tax exemption since long before they began growing their membership and product offerings.They challenge the banks to convert to credit unions if credit union status is preferable. The issue is hotly debated with lengthy arguments on both sides.

The banks concern with credit union's tax exemption seems like grousing. If credit unions are growing, it is because they are doing a better job of serving the market. The banks cannot show the credit unions are taking banks' market share rather than expanding the market. Credit unions market share nationwide is minuscule compared to that of banks.

Most importantly, there are innumerable credit unions whose assets number in the millions, not billions, that function exactly as the cooperative institutions they are should. They make small loans to those who cannot obtain credit elsewhere, such as the economically disadvantaged and ethnic minorities. Imposing further burdens on these institutions would only disadvantage their members, not help banks.