Why it matters:
The growing expansion of tax-exempt credit unions in Utah is creating an uneven playing field in financial services and diverting millions from public education funding.
One big thing:
While banks pay about 30 percent of their net income in state and federal taxes, Utah’s largest credit unions retain hundreds of millions in profits annually without paying income taxes – an exemption originally designed for small, member-focused cooperatives.
The big picture:
What started as a Depression-era solution to help working-class Americans access loans has evolved into something quite different. As credit unions expand beyond their traditional boundaries, the distinction between banks and credit unions has blurred significantly.
“Most people don’t realize that every time someone chooses to move from a bank to a credit union, our kids schools lose money,” says Howard Headlee, president and CEO of the Utah Bankers Association.
By the numbers:
- Utah’s two largest credit unions together retain approximately $500 million in annual profits tax-free
- The credit union tax subsidy costs taxpayers about $3 billion nationally
- Banks pay roughly 30 percent of their net income in state and federal taxes
How we got here:
Credit unions were originally designed to serve specific groups of people with common bonds, like workplace associations. Headlee explains, “Back when credit unions served a tight-knit group of people they didn’t have a profit motive, they only made enough money to serve their limited group of members, there really wasn’t a need to tax them.”
The bottom line:
While Utah’s state legislature has attempted to address the issue for state-chartered institutions, federally chartered credit unions continue to operate without paying income taxes, despite functioning increasingly like traditional banks.
“Until Congress acts, there isn’t much that can be done,” notes Headlee, pointing out that “people should be free to choose wherever they want to bank, without having to worry about how it might impact their kids education, or the police or their roads.”