The Senate Finance Committee on Monday opened its mark-up of the Senate version of the tax reform bill. Ahead of the hearing, NAFCU President and CEO Dan Berger sent a letter touting the positive impact credit unions and their tax-exempt status have on the nation's economy.
In the letter sent to Senate Finance Committee Chairman Orrin Hatch, R-Utah, Berger thanked Hatch for preserving the credit union tax exemption in the Chairman's Mark of the Senate's Tax Cuts and Jobs Act and urged him to oppose any amendments that would change credit unions' tax status.
"As you are aware, credit unions provide great economic benefit to the nation's economy," Berger wrote. "Credit unions are a vital part of the financial services industry and provide their nearly 110 million members financial opportunities they may not otherwise have access to. The cumulative benefit credit unions provide the greater economy totals $16 billion a year according to an independent study released by NAFCU in 2017."
Berger also expressed disappointment that some in the banking industry are attacking credit unions' tax exemption, despite the economic benefits credit unions bring to the country and the tax breaks some banks receive through Subchapter S.
"As not-for-profit member-owned cooperatives, credit unions are different than banks with a focus on member-service rather than stockholder enrichment," Berger continued. "They are also subject to a number of legislative and regulatory restrictions that do not apply to banks."
In addition to preserving credit unions' tax status, the Senate tax bill preserves the mortgage-interest deduction with a cap of $1 million for newly purchased homes and the 457, 401(k) and 403b would all be subject to an aggregate limit on total tax-exempt contributions, whether from an employee or employer. The Senate bill entirely repeals state and local property tax deductions.
The Senate tax legislation aligns with the House bill regarding the unrelated business income tax (UBIT) and the excise tax on tax-exempt executive compensation (the tax-exempt organization would have to pay a 20 percent tax on any executive salary more than $1 million). The bill also fully eliminates the tax deduction for FDIC premiums for institutions with more than $50 billion in assets.
NAFCU is advocating five tenets for ensuring a positive environment for credit unions, and one of these is a fair playing field. NAFCU will continue to monitor the committee's mark-up of the bill throughout the week and will be engaging Congress on any potential impact this legislation would have on credit unions – not only with respect to the tax exemption, but other tax code provisions as well.
Preserving credit unions' tax exemption remains NAFCU’s top legislative priority.