By Brad Lane, Chair-Elect, Iowa Bankers Association, and President & CEO, Security Savings Bank
This week, a large and profitable credit union in Iowa used its state and federal income tax exemption to buy a taxpaying bank. The customers and products will remain the same — what changes is the name on the building and the responsibility to pay income taxes.
The $1.5 trillion credit union industry expects taxpayers to subsidize their buildings in the highest income neighborhoods, their CEOs’ million-dollar compensation packages, and now their purchases of taxpaying competitors. The end result is that everybody else pays more so that the credit union can pay nothing.
And it does not stop with the purchase of banks. The largest credit unions are buying other formerly taxpaying entities, like insurance agencies and abstract companies. Taxpayers of Iowa need to stand up and say enough is enough. When the government manipulates the marketplace through tax policy — the result is the average Iowa household pays nearly $7,000 of income tax on $56,570 of income, and a credit union earning $75 million pays nothing.
Credit unions received the income tax exemption during the great depression as a way to help people of low and moderate means receive consumer loans. That idea has morphed into an Iowa credit union that is the largest and most profitable financial institution in the state making multimillion dollar commercial loans.
The Iowa Legislature considered this issue in 2018 and the Iowa Senate passed a bill that would have taxed the three largest credit unions. These three credit unions make up over half of the industry’s assets and account for more than 70 percent of the industry’s profits. It would not have impacted the other 81 credit unions in Iowa — many of which actually do try to fulfill their statutory mission of helping low- and moderate-income people make consumer purchases.
The bill was a reasonable solution to help provide a small degree of equity in Iowa’s tax code for those Iowans who shoulder the expense of funding state priorities like education, Medicaid and water quality. These large and profitable credit unions enjoy and take advantage of these quality-of-life priorities, but they don’t pay their fair share to help support them.
When the Iowa Legislature looks at tax policy next session, it should make sure the tax code is fair and equitable for all taxpayers. If everyone pays a little, than none have to pay too much and the tax code will work as intended. If the marketplace is allowed to work — consumers will decide who the winners and losers are rather than the government.