Right now, the credit union lobby is working hard to try to more than double the amount of commercial loans that credit unions can make and hold on their books. While many people might think this is a good thing, I thought I should remind you that credit unions are totally exempt from taxation, as a result of laws passed back in the 1990’s under the guidance of then speaker of the house Newt Gingrich, after the United States Supreme Court had ruled that credit unions had exceeded the boundaries of membership originally used when credit unions were created.
Most credit unions are fairly small, and have served good purposes in society, providing credit to consumers who shared a “common bond,” e.g., working for the same company. Today, however, many credit unions hold billions of dollars in assets, and the largest is over $40 BILLION dollars. To put that in perspective, that means they are about 400 times larger than The Victory Bank! We have recently found ourselves losing local commercial real estate loans to “lowball pricing” from local credit unions, loans being made to people and businesses that have nothing to do with the credit union or its supposed common bonds. A small bank like ours pays taxes to the State of Pennsylvania based on the capital we hold, even if we make no income whatsoever, and federal income taxes at regular corporate rates of about 30%. I would guess that most of you pay taxes, too? I know that I sure do.
So, we find ourselves competing head-to-head with a government subsidized industry that has about a 33% advantage over us for a loan that is in no way associated with the mission or common bond of the credit union. And all of this is taking place while the government is operating with record deficits. That makes no sense to me at all. I had the chance to raise this issue with a member of congress last week who showed no interest in the issue whatsoever. “Don’t expect any tax increases out of this Congress,” he stated with stubborn resolve. I told him that I respectfully disagreed with him and that there is a big difference between raising taxes, and continuing and now possibly expanding a federally created tax subsidy for a particular industry sector. I believe that most tax subsidies are a bad idea in the long run, since they tend to create artificial support for something that is inherently broken or inefficient, and in this case, to help create market pricing for loans that makes no sense, either.
I personally believe that the creation and now the possible expansion of the tax subsidy for credit unions was done strictly for political purposes and for the re-election of those in power, and has nothing to do with the best interests of the nation or the economy. To be clear, I have nothing against credit unions per se, and many do a lot of valuable work in society. I just can’t believe it is good policy for the government to continue to subsidize them as a competitor against a tax-paying company like ours. I wonder how you see this issue?