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The value of Credit Unions
McClatchy Employees, as well as all other credit unions, is a
non-profit financial cooperative. Credit unions by their very structure
are fundamentally different from banks in many ways that provide a
significant benefit to consumers. Because of these differences,
Congress has exempted credit unions from paying federal income taxes.
Currently the banking industry is challenging the credit union tax
exemption. We have created this page to help you understand the value
of credit unions and the importance of the tax exemption.
Why are Credit Unions tax
exempt?
Congress decided in 1937 to exempt credit unions from federal income
tax because of their unique structure and role in the financial
services industry. This tax exemption was reaffirmed by Congress in
1951 and again in 1998. In November 2005, the Ways and Means committee
of the House of Representatives again reaffirmed the position that
credit unions should not be taxed. Credit unions provide a valuable
alternative to the for-profit banking system, and continue to serve
consumers who have no other access to financial services.
How do consumers benefit?
Credit unions provide benefits to their members through higher dividend
rates, lower interest rates on loans, and reduced fees. Credit unions
also benefit all consumers by creating an environment that forces banks
to compete.
How are Credit Unions
different from Banks?
While some consumers may think that banks and credit unions are
basically identical, there are some major differences between the two
as the listings below illustrate.
Credit Unions
* Owned by their members
* Focused on serving consumers
* Not-for-profit cooperatives
* Volunteer Board and Committees
* Must be eligible to join
* Earnings are returned to members
* Pay payroll, property, and sales taxes
Banks
* Owned by their stockholders
* Focused on generating profit
* For-profit business
* Compensated Board of Directors
* Anyone can be a customer
* Profits are distributed to stockholders
* Pay federal income taxes, although some are exempt
Could credit unions lose
their tax exemption?
The banking industry is asking legislators to tax credit unions. They
say that the tax exemption gives credit unions an unfair advantage and
is adversely affecting bank profits. If that were true, why do banks
report year after year of record profits? Clearly, the credit union tax
exemption has not affected bank profits and continues to help credit
unions serve consumers well.
Why should Credit Unions
remain tax exempt?
The facts that convinced Congress to originally grant credit unions
their tax exemption remain true today. However, if credit unions lose
their tax-exempt status, they will have to pass along those taxes in
higher fees, higher loan rates, and lower dividends on savings.
Ultimately, a tax on credit
unions is a tax on consumers!
