Tax Or No Tax?
There are many distinguishing differences among credit unions and banks. The most controversial and prominent is the differences in taxation of the two institutions. While banks are required to pay all taxes of any corporation, credit unions are except from having to pay federal and state income taxes. Most banks and associations that govern them are pushing for the federal government to require credit unions to pay full income taxes. The most common arguments in favor of credit union taxation are the unfair market that credit union's create because of tax exemption, the federal government is losing
valuable income from the tax-exempt status, and if saving and loan cooperatives should have to pay taxes then so should credit unions.
The first reason banks want credit unions to be forced to pay income taxes is to create a fair market of competition between the two institutions. Keith Leggett, a senior economist with the American Bankers Association, argues that community credit unions have a competitive advantage over community banks due to their exempt status. He supports this claim by giving several examples, showing that "over the last 21 years, the market share of household assets controlled by banks and savings institutions fell by more than half, from 27 percent to 12.7 percent," while credit unions actually grew in assets. He goes on to show that in some communities, credit unions are actually larger than banks and control more of the market. Leggett claims that this control and their success while banks have failed can be attributed to their exempt status. Opposing this argument, credit unions claim that they are completely different institutions than banks and should not be governed and taxed in the same manner. Credit unions claim that it is not an equal comparison when claiming that tax exemption is unfair for credit unions and not banks. Credit union are member owned cooperatives, with a volunteer board of directors, unlike...
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