One word seems to be informing and influencing the tax reform debate more than any other: “fairness.”
President Trump has said he wants a tax code that is “fair” and eliminates “the loopholes and complexity that primarily benefit the wealthiest Americans and special interests.” Commerce Secretary Wilbur Ross says Trump’s tax plan “will restore fundamental fairness…to our economy.”
House Speaker Paul Ryan, a Republican, says tax reform should be “all about fairness.” Democrats agree. Liberal leaders, including Senate Minority Leader Chuck Schumer, a Democrat, and Sen. Bernie Sanders, a self-proclaimed independent socialist, claim they want to promote fairness and level the playing field by getting rid of loopholes and preferential treatment in the tax code.
If federal leaders are as committed to fairness and eliminating favoritism as they claim, Congress should eliminate big credit unions’ egregious abuse of their non-profit status to gain an unfair advantage.
Under an antiquated law, the Internal Revenue Service allows credit unions — even ones with billions of dollars in assets and CEOs receiving seven-figure salaries — to operate as tax-exempt charities, just like disaster relief organizations, food banks, animal shelters and after-school programs.
This peculiar rule gives credit unions an unreasonable upper hand when competing against tax-paying banks. Credit unions don’t pay a penny in federal taxes, while banks shell out about 29% of their revenues to Uncle Sam – even though credit unions and banks provide customers with exactly the same services.
Rich credit unions then redirect the money they should be paying in taxes to fund some very questionable things.
The following are the top 10 ways wealthy credit unions abuse their nonprofit statuses:
Sponsorship of stadiums, including an NBA Arena for $120 million: Golden 1 Credit Union paid $120 million for naming rights for the facility housing the Sacramento Kings. Why do not-for-profit entities need to sponsor NBA arenas?
Lobbying and campaign donations: Credit unions donate millions of dollars to trade associations and political action committees (PACs) that use the money to lobby Congress and influence elections in the hopes of maintaining their indefensible tax advantage. In 2016, credit unions spent $7.4 million on lobbying expenses and the two largest credit union PACs spent $3.5 million on campaign contributions.
Hiding behind the military flag to serve everyone: The $22.8 billion Pentagon Federal Credit Union proudly states that being part of its original service group — military families — isn’t necessary anymore. The credit union now calls itself “PenFed,” dropping the word Pentagon in its national ads that promise “great rates for everyone.” PenFed even trumpets that no military service is required. Don’t military families lose when the institution spends millions advertising to the masses?
Trying to get anyone as a customer: Credit unions are supposed to serve small groups or communities united by a common bond. The $1.8 billion Elevations Credit Union makes a mockery of this, advertising that “being human” is what it takes to be a member.
Untaxed, unrelated side businesses: Many of these “not-for-profit” entities have expanded into side businesses, such as Pentagon Federal Credit Union’s Berkshire Hathaway PenFed Realty, “a full service real estate company… with 50+ offices and 1,700 world-class sales professionals” serving nine states and the District of Columbia. PenFed’s real estate profits are tax exempt as well, because federal credit unions are exempt from the unrelated business income tax (UBIT).
Swallowing up taxpaying banks, expanding tax subsidies: Large tax-exempt credit unions are increasingly purchasing small taxpaying banks. Over the past 18 months, seven banks have been swallowed up by credit unions. The trend is so prevalent that a consulting industry was born. Florida’s $1.4 billion Achieva Credit Union, which purchased a bank in 2015, formed a mergers and acquisitions consulting practice group to advise other credit unions on buying banks.
Sponsorship of professional sports franchises: At least two NFL franchises, the New York Jets and the Houston Texans, are sponsored by credit unions. Why do not-for-profit entities need to sponsor NFL teams?
Private aircraft and other “toy” loans for the affluent: Minnesota-based Wings Financial Credit Union offers “toy loans” for luxury items like yachts, RVs, and private aircraft.
Self-dealing executives: Many credit union CEOs make millions. For example, as the Denver Post discovered, “Denver-based Public Service Credit Union, a not-for-profit, awarded its president and chief executive, David Maus, $11 million in 2010, a sum so large it has rocked the credit-union world and beyond.”
Anti-consumer behavior: While credit unions trumpet their customer-owned structure (which is also shared by taxpaying mutual banks), many behave in anti-consumer ways. For example, the Consumer Financial Protection Bureau (CFPB) fined Navy Federal Credit Union $28.5 million for making false threats about debt collection to its military members.
Drew Johnson is a senior scholar at the Taxpayers Protection Alliance.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.