Yet another large credit union has gobbled up a bank as part of a trend that should concern taxpayers. Texas Dow Employees Credit Union, with $4.7 billion in assets, recently announced the purchase of Louisiana-based Sabine State Bank and Trust Co, which has $1.2 billion in assets.
Generally speaking, mergers and acquisitions are a normal part of the free market system, but the uptick in credit unions buying banks is the unfortunate byproduct of a flawed tax code. A core principle of good tax policy is neutrality. In other words, similar businesses should be subject to the same tax rates and rules. That is not the case with credit unions and banks, which deliver similar services but face very different tax systems because credit unions are considered non-profit organizations and are not subject to federal income taxes. Not only does the current tax system put banks and credit unions on an unlevel playing field, it also makes banks a popular target for credit union acquisitions.
In 2020, my colleague Thomas Aiello sounded the alarm on this troubling trend that has significant fiscal implications:
Permanently taking taxpaying business entities off treasuries’ tax rolls and shrinking the tax base is a textbook example of poor tax policy. The purpose of the tax code is supposed to be neutral, rather than helping one particular business gain the upper-hand in the free market.
As Congress looks for ways to offset the cost of the Tax Cuts and Jobs Act – large portions of which are scheduled to expire at the end of 2025 – it should give a careful look at the non-profit tax status of credit unions and work to improve neutrality in the tax code.