Credit union's consumer argument may be true, but is it relevant?
We are fortunate in the Brainerd Lakes area to have a variety of financial services options, which gives consumers lots of choice. One of those choices is our local credit unions. A credit union advocate recently wrote an article, stating that consumers benefit from the credit union’s tax exempt status.
Because credit unions do not pay federal and state income taxes, they claim to offer better rates to consumers. Taxes are a big part of a business’s overhead expenses. Because credit unions do not pay state and federal income taxes, it stands to reason they should pass those savings onto consumers.
However, does that benefit hold up if you apply it to all businesses? If consumers benefit when a select business does not pay taxes, should we eliminate federal and state income taxes for all businesses? In theory, businesses would then pass those savings on and consumers would benefit every time they shopped for groceries, appliances, computers, clothes, cars and everything else they purchase.
But there’s a problem with that model. If businesses no longer paid taxes, who would pay for the government programs we all use and need? My guess is consumers would have to step up to fill the gap and pay all the taxes. Imagine the tax bill that each family would have to pay so that we could eliminate federal and state income taxes for businesses! As a taxpayer myself, I think that system would be absolutely unworkable under our current tax model.
Congress and the state of Minnesota give certain businesses a huge competitive advantage when they grant them an income tax exemption. For the sake of all the people and businesses that pay taxes, policy makers must ensure that those tax exemptions are valid. Many have questioned the validity of the credit union tax exemption, and I think policy makers should consider opening it up to scrutiny.
Making the argument that consumers benefit does not help justify the tax exemption. It just diverts attention away from the real question: Why does every teacher, waitress and fire fighter pay more federal and state income taxes than the entire $1 trillion credit union industry?
Mike Riley is the CEO of Bremer Bank in Brainerd.