Last year’s passage of comprehensive tax reform has undoubtedly made the federal tax code fairer and more conducive to economic growth and individual prosperity. The provisions in the Tax Cuts and Jobs Act have increased wages for millions of workers, raised business confidence, and kept more money in the pockets of hardworking taxpayers. Now that House Republicans are moving forward with “Tax Reform 2.0” it’s time to put all options on the table to continue to improve the code. One such option has been floated by Senate Finance Committee Chairman Orrin Hatch — an examination of the tax-exempt status of federal credit unions. Though he received some backlash from special interest groups for even broaching the subject, Chairman Hatch’s efforts deserve careful consideration.
NTU has written extensively on this subject and noted that a few large credit unions have taken advantage of the tax exemption and have relaxed their field of membership requirements from those who share a common bond, to virtually anyone and everyone. In many respects, these few large institutions are directly competing with tax-paying community banks for similar customers, which falls in conflict with the original intent of Congress under the Federal Credit Union Act of 1934.
We have long discussed the reasoning for Congress and the administration to review this and other provisions of the tax code, with an eye toward simplification and reducing tax rates across the board (though certainly not for purposes of fattening the Treasury’s coffers). Yet, as Congress examines what tax policy should look like, can additional progress also be made toward improving how tax policy actually functions at the filing level? The answer to this question is important, especially as it pertains to non-profit or not-for-profit groups that engage in activities with more than a passing resemblance to commercial transactions. Credit unions certainly fit in this category.
Accordingly, some have suggested that larger federal credit unions should be required to file the IRS Form 990 (state-chartered credit unions must already do so, and up until the 1980s the National Credit Union Administration, or NCUA, prepared a consolidated return for all institutions under its supervision).