Last week, Iowa Senate passed a bill which would modify the state’s income tax system in a number of ways. One change is creation of a “unified” financial institution tax levied upon the income of banks, savings and loan associations, and credit unions. The credit union industry is opposed to this legislation since it would end its income tax exemption.
That’s right. Credit unions presently pay no income taxes. No taxes to support education, infrastructure, or other vital state services. The credit union industry selfishly believes it should continue to be exempt from taxation for a number of untrue and nonsensical reasons. Take for example a letter written to the editor of this newspaper last week by Jeff Disterhoft, president and CEO of University of Iowa Community Credit Union (UICCU).
Mr. Disterhoft states “We are different from banks. As not-for-profit, member-owned cooperatives, our earnings go directly back into our members and our communities, not to fill the pockets of a few select shareholders”.
Mr. Disterhoft’s characterization of the credit union industry as not-for-profit is nonsense. Consider that the largest financial institution in Iowa is UICCU, weighing in at $4.7 billion and earning nearly $70 million—all income tax free. The five largest credit unions in the state hold assets totaling more than $11 billion. Last year, they earned over $140 million combined. Again, all income tax free. How can an industry earning such large profits call itself not-for profit?
It also is untrue that credit unions’ earnings go directly back to members. Credit unions generally do not pay dividends to their members, unlike the agriculture and utility cooperatives that the credit union industry claims as its brethren. In fact, unlike credit unions, other cooperatives are taxed on income that is not given back. Rather, UICCU retained its $70 million in earnings to fund its explosive growth at the expense of Iowa taxpayers and, yes, its own members.
Mr. Disterhoft’s contention that credit unions need a tax subsidy to give money back to their communities is also nonsensical. Banks such as mine pay both state and federal income taxes and still are able to make millions of dollars of charitable investments in their communities every year. Just ask any church, youth, or philanthropic organization across the state about the financial support they receive from their tax-paying community banks.
Mr. Disterhoft disrespects capitalism, the foundation of our country’s economy, when he opposes shareholders profiting from placing their own funds at risk in the banks they own. Perhaps his true belief is that taxpayers should subsidize the high six-figure — and, yes, even seven-figure — compensation packages earned by some of these large credit union executives. I wonder what UICCU’s entrepreneurial business members think of Mr. Disterhoft’s views on capitalism?
Mr. Disterhoft also states in his letter “We provide financial education to our members who want to improve their financial lives.” However, this rhetoric doesn’t align with reality. In a recent Des Moines Register story, an UICCU senior official, seemingly in an effort to defend its income tax exemption, boasted that her institution had more loan losses than any financial institution in Iowa. “More than twice that of the closest bank”. Loan losses occur when borrowers can’t repay their loans and the collateral (vehicles and homes) is seized and sold by the lender for an amount less than owed. Thus, UICCU’s prideful loan losses have ruined the credit histories and lives of hundreds or even thousands of Iowans. Why are Iowa taxpayers subsidizing this behavior?
The banking company I work for and am unashamedly a shareholder of is only 3 percent the size of UICCU, and earns just a small fraction of what UICCU pockets. Yet, we pay well over $100,000 per year in taxes to the state of Iowa, and our shareholders, including myself, personally pay federal income tax on nearly $2 million of income.
I don’t mind paying my own taxes, but I don’t like paying someone else’s. If you feel the same way, contact your state legislator and urge support for leveling the playing field and ending the credit union industry’s free ride.