Regarding the credit union push to more than double their commercial lending authority—TAX FREE—let me offer these examples.
Two financial institutions sit across the town square from each other—one is a commercial community bank, and one is a credit union. Both make small-business commercial loans. A small-business customer comes in to both institutions seeking a new line of credit. The credit union can automatically undercut the rate that the bank can offer because the CU pays no taxes and the bank pays at least 40 percent of its income in taxes. Oh, and the credit union does not have to comply with the Community Reinvestment Act, making the loan it makes even less costly because it has less compliance burden.
If the credit union gets the commercial loan because of the lower rate, that means those taxes are lost to the community. None of it will go toward helping local schools and the municipal government build new sidewalks for the safety of the children or improve municipal services. To remedy that situation, why not say that if the credit unions want to make commercial loans, they have to pay taxes on the income they earn from those commercial loans so that both institutions are competing on roughly equal footing? All financial institutions compete for the same commercial loans in the general marketplace—so why shouldn’t all institutions pay taxes on the income from those loans? What rationale is there for allowing one segment of the retail financial sector to make tax-free commercial loans to the same pool of borrowers served by taxpaying financial firms?
Someone in the press should be looking into questions such as these. An analogy would be if Chrysler and GM were allowed to offer any kind of vehicle to the general public—subcompacts, compacts, sedans, SUVs, etc., but they had to pay taxes on the cars they sell. However, Ford could only make sedans, nothing else, but, in exchange for the restriction, it would not have to pay taxes on the sedans they sell. Everyone accepts this arrangement. Then Congress lets Ford begin to make compact cars and SUVs AND retain their tax exemption. How would the industry react to that? Would that be equitable?