Ducking Taxes and Proud of it
By Bill Martin, Nevada State Bank
The disagreement between banks and credit unions is simple: we pay taxes, credit unions pay virtually none. This includes Federal Corporate Income Taxes (36 percent), sales taxes on purchases (7.5 percent), Nevada Business Tax (2 percent of employee compensation) and Nevada bank branch franchise tax of $7,000 per branch). Here are some quotes from the credit union industry roundtable transcribed in the May 2005 issue of Nevada Business Journal. “Our members [depositors] pay taxes on the dividends we pay them,” said William Ferrence of Boulder Dam Credit Union. “We pay payroll taxes,” said Sue Longson, Sonepco Federal Credit Union. Don’t tax you, don’t tax me, tax the man behind the tree. Let’s all beat the system. They say if it weren’t for their tax exempt status banks would gouge the public. “That’s one of the reasons Congress put us in the game – to keep the banks in check,” said Ferrence. That appears nowhere in the legislative history of credit unions. Markets create competition, not government.
Credit unions ignore the tax exempt question, seeking hollow defenses and promoting untrue statements. There is no reason to subsidize the public’s financial services. And now, Nevada Federal Credit Union offers real estate brokerage at 4.5 percent listing fee and .6 percent rebate, and title work at discount prices. It is wrong for the government subsidy to allow them to compete in other private sector areas.
Congress never intended for there to be two financial systems – one that pays taxes and one that doesn’t. Every taxpayer should be offended by the credit union tax exemption.
Record Earnings Prove Banks Have the Advantage
By Bradley W. Beal, Nevada Federal Credit Union
The banking industry has long relied on the same stock response regarding credit union competition. The credit union tax exemption is unfair, they repeatedly say, because it puts banks at a competitive disadvantage and impedes their efforts to maximize profits. Of course, credit unions have continued to point out that the banking industry’s record earnings tend to undermine such a view.
While banks have done a great job of ignoring credit unions for making this observation, they may have more difficulty ignoring a recent government accountability office report that examines how their industry has fared financially since the 1980s. Requested by Sen. Bernie Sanders, I-Vt., the report documents the steady rise of bank profits and how the banking industry has benefited from substantial federal tax breaks.
Over the last 10 years, net income for banks grew at a rate twice that of credit unions, and banks and thrifts increasingly availed themselves of subchapter S status to avoid corporate income tax. By 2006, the same year the banking industry set a new earnings record, 31 percent of banks and thrifts – a total of 2,356 institutions – had converted to subchapter S corporations.
Sure, credit unions have a federal tax exemption, but it’s quite paltry compared to the $108 billion in tax deductions that banks claimed in 2004. The report also estimates the significant cost to taxpayers for the thrift bailout in the 1980s at about $198 billion (in 2006 dollars).
The banks are right about one thing: it isn’t a level playing field out there. Banks clearly have the advantage and are making the most of it.