US Credit Unions 'Should Pay Tax', Says FDIC Chairman

by Leroy Baker, Tax-News.com, New York

18 March 2004

Chairman of the Federal Deposit Insurance Corporation, Don Powell, has suggested the US credit unions should lose their tax-exempt status in view of the high rates of growth the sector has enjoyed in recent years.

“Credit unions ought to pay taxes. The playing field has shifted in recent years,” observed Mr Powell in a speech to the Independent Community Bankers of America. “We've gone from 20 credit unions with assets of more than $1 billion ten years ago to 83 such institutions today,” he explained.

“In my view, if they are going to compete with banks then we should do our best to ensure that the competition is fair. Our back-of-the-envelope research shows that taxing credit unions would bring in about $2 billion to the Federal Treasury - and would eliminate a current credit union subsidy of between 33 and 36 basis points,” argued Powell.

His view is one generally supported by the nation’s banking industry. However, there are currently no plans by the government to abolish tax exemption for credit unions, and the Bush administration has officially stated that it would be against such a move.

An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The FDIC’s mission is to preserve and promote public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for up to $100,000. It also aims to limit damage to the economy and the financial system resulting from the failure of a bank or thrift institution.

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