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Competitive advantage: a study of the federal tax exemption for credit unions

机译:竞争优势:对信用合作社联邦免税的研究

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摘要

This study evaluates the federal tax exemption for credit unions. It reviews the industry’s history, its unique exemption, the motivation behind this tax treatment, the eroding case for special treatment, the size of the tax break and its effects on credit unions, their competitors, and their members. The nation’s credit unions always have been exempt from federal income taxation. Federally chartered credit unions are even exempt from state and local income taxation. Saving and loan associations, also originally largely exempt from taxation, lost their exemption on 1951 and calls for tax reform, including those of former Presidents Jimmy Carter and Ronald Reagan, included provisions to end the special exemptions of credit unions. But the credit union tax exemptions have survived. At least in part, these exemptions arose from the cooperative nature of credit union ownership and limits on their ability to compete because of their legal “field of membership” restrictions, which limited who could be a depositor and borrower from a credit union. Nonetheless, credit unions have competed with other financial institutions, especially banks, with a major cost advantage, the tax exemption. Tax exemption has allowed credit unions to grow much more rapidly than banks. Unusual growth was also fostered by steady erosion of limits on credit union membership over the past two decades. In 1998, the US Supreme Court struck down the liberalization of membership rules, but the US Congress promptly passed new legislation overriding the court. As a result the processes of consolidation, merger and broadening of geographic markets accelerated while credit unions were allowed to keep their tax exemptions. Thus, Congress created new tensions by weakening the case for tax exemption without addressing its continuing legitimacy. Today credit unions continue to grow faster than banks, have little practical limitations on membership, make business loans that increasingly have no limits on who can borrow, how much or for what purpose. Even the limits that Congress imposed, as they otherwise removed limits on credit union markets and competition, have broad loopholes and remain under serious challenge by the credit union industry. The tax loss to the federal Treasury is estimated here to be $2 billion and to be growing rapidly. Indeed, the tax loss over the five years, 2004-2008 is estimated to be $12.6 billion and reaches $31.3 billion over the ten-year window 2005-2014. The size of the tax loss is substantially higher than estimates prepared by official arbiters including the Office of Management and Budget or the Congressional Budget Office.The annual loss in tax revenue could accrue to several different credit union constituencies: members, as depositors (higher “dividends,” or interest rates, on their “shares,” or deposits), borrowers (lower interest rates on loans), or shareholders (through greater retained earnings). The benefits of the tax break could also accrue to management, workers or other suppliers through inflated costs or inefficient operations. Based on other studies of differences between credit unions and banks and on direct and indirect evidence gathered for this study, it is found that the principal effect of the tax break is to enlarge the retained earnings or equity of the credit union industry. A higher ratio of equity to assets has made possible a larger and faster growing industry than would otherwise have been possible. There is some evidence that certain type loans have lower rates at credit unions. These are for loans that have become less profitable and less available at banks, such as auto loans. There is also some evidence that part of the tax advantage is absorbed by higher costs than they would have in a taxed, or more competitive, environment. Overall the dominant effect is to boost the equity ratio. Over the past ten years, credit unions have had an equity ratio, the ratio of equity to total assets that is more than 25 percent larger than that of banks. This is about the size of effect predicted by economic theory if the dominant effect of the tax break is to raise this measure.The equity ratio is a cushion against losses in asset value that could threaten the solvency of a financial institution. It is also a constraint on growth because a relatively safe institution cannot allow its assets to grow faster than its equity if it is holding its desired equity ratio. Despite the fact that the risk of credit union assets, largely shorter term consumer loans and consumer mortgages, is much smaller than the risks of bank assets, which are largely business loans and securities, credit unions hold a higher cushion against risk. These unusually large holding of equity cannot be realized through stock sales by the owners/members of credit unions and they do not yield competitive risk-adjusted yields on assets that they would have to earn if credit unions were subject to the same taxes as banks. Removing the tax exemption would level the playing field, reducing the excessive growth and relative size of credit union assets. It would also raise about $2 billion in tax revenue, either directly from credit unions or from more profitable and more highly taxed banks, where credit union deposits and assets would migrate if the tax exemption were ended. Finally it would raise the rate of return on some $65 billion of capital that is squirreled away in credit unions, earning lower rates of return than would be the case at taxed banks. Some analysts have argued that small institutions (under $10 million in assets) should continue to be tax exempt because of their special character and, perhaps, innate inefficiencies. But the corporate income tax already takes smallness into effect by taxing low-income firms at lower tax rates (15%, instead of up to 35% for large firms, or up to 39 percent for mid-sized corporations).
机译:这项研究评估了信用合作社的联邦免税额。它回顾了该行业的历史,其独特的豁免,这种税收待遇背后的动机,特殊待遇的侵蚀案例,税收减免的规模及其对信用合作社,其竞争对手及其成员的影响。美国的信用合作社一直免征联邦所得税。联邦特许信用合作社甚至免征州和地方所得税。最初也基本上免税的储蓄和贷款协会在1951年失去了豁免,并呼吁进行税收改革,包括前总统吉米·卡特和罗纳德·里根的改革,其中包括终止信用合作社特别豁免的规定。但是,信用社免税政策仍然存在。这些豁免至少部分地源于信用社所有权的合作性质以及由于其法律上的“会员资格”限制而限制了他们的竞争能力,这限制了谁可以成为信用社的存款人和借款人。但是,信用合作社与其他金融机构,尤其是银行竞争,具有主要的成本优势,即免税。免税使信用合作社的发展比银行快得多。在过去的二十年中,信用合作社成员资格的限制不断受到侵蚀,也助长了非正常的增长。 1998年,美国最高法院取消了会员资格规则的自由化规定,但美国国会迅速通过了覆盖法院的新立法。结果,加快了合并,合并和扩大地域市场的进程,同时允许信用合作社免税。因此,国会在不解决其持续合法性的情况下,通过削弱免税理由而造成了新的紧张局势。如今,信用合作社的增长速度一直快于银行,对会员资格的实际限制几乎没有,对商业贷款的限制也越来越不受谁可以借款,贷款多少或出于什么目的的限制。甚至国会强加的限制(否则会取消对信用合作社市场和竞争的限制)也存在广泛的漏洞,并且仍然受到信用合作社行业的严重挑战。联邦财政部的税收损失估计为20亿美元,并且还在迅速增长。的确,在2004-2008的五年中,税收损失估计为126亿美元,在2005-2014的十年窗口中达到313亿美元。税收损失的规模大大高于包括管理和预算办公室或国会预算办公室在内的官方仲裁机构的估计。税收的年度损失可能归因于几个不同的信用社选区:成员,作为存款人(较高的“他们的“股份”或存款的“股息”或利率),借款人(贷款的较低利率)或股东(通过增加的留存收益)。税收减免的好处还可能通过虚增的成本或低效的运营而给管理层,工人或其他供应商带来。根据对信用合作社与银行之间差异的其他研究,以及根据本研究收集的直接和间接证据,发现减税的主要作用是扩大信用合作社行业的保留收益或股权。较高的股本比资产使一个更大,更快发展的行业成为可能。有证据表明,某些类型的贷款在信用合作社的利率较低。这些是针对利润减少,银行可支配的贷款,例如汽车贷款。还有一些证据表明,部分税收优势被较高的成本吸收,而不是在征税或更具有竞争力的环境中。总体而言,主导作用是提高股权比率。在过去的十年中,信用合作社拥有的权益比率,权益与总资产的比率比银行大25%以上。如果减税的主要影响是提高这一措施,这大约是经济学理论预测的效果的大小。股权比率是对资产价值损失的缓冲,资产价值损失可能威胁到金融机构的偿付能力。这也是对增长的限制,因为相对安全的机构如果持有所需的股本比率,就不能允许其资产增长快于其股本。尽管存在以下事实:信用合作社资产(主要是短期消费贷款和消费者抵押贷款)的风险要比银行资产(主要是商业贷款和证券)的风险小得多,信用合作社可以更好地抵御风险。信用合作社的所有者/成员无法通过出售股票来实现这些异常庞大的股权,并且如果信用合作社要缴纳与银行相同的税金,他们就无法获得竞争性的风险调整收益。取消免税将平整竞争环境,减少信用社资产的过度增长和相对规模。它还将直接从信用合作社或利润更高,税率更高的银行直接筹集约20亿美元的税收,如果免税终止,信用合作社的存款和资产将转移。最终,这将提高储蓄在信用合作社中的约650亿美元资本的回报率,其回报率低于征税银行的回报率。一些分析人士认为,小型机构(资产在1000万美元以下)应继续免税,因为它们的特殊性以及天生的低效率。但是,企业所得税已通过对低收入企业以较低税率征税(15%,而不是大型企业最高为35%,中型企业最高为39%)的方式开始生效。

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    Tatom John;

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