Repeal the Tax Exemption for Credit Unions

Credit unions are tax-exempt nonprofit financial institutions. While originally founded as community organizations meant to serve particular, often disadvantaged households and communities, credit unions today are less distinguishable from conventional banks. The number of credit unions has declined, but the remaining credit unions are larger, and the population of credit union customers is similar in terms of economic background to the population of bank customers.

This option repeals the tax exemption for credit unions. This change would broaden the corporate tax base. At the same time, it would slightly increase the cost of capital, thus slightly reducing investment.

On a conventional basis, this option would decrease the primary deficit by $31.7 billion over the budget window. Long-run GDP would fall by less than 0.05 percent, while long-run GNP would be unchanged, as the effects of the smaller deficits offset the effects of reduced investment on American incomes. On a dynamic basis, the primary deficit would decrease by $29.2 billion from 2027 through 2036, $2.5 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 175.7 percent by 2056.

On average, in 2036, taxpayers would see increases in their after-tax incomes of less than 0.05 percent. The top quintile of taxpayers would experience a less than 0.05 percent decrease, whereas the bottom quintile would see no change. On a long-run dynamic basis, taxpayers would see a less than 0.05 percent decrease on average.