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Credit union industry source attributes nearly $10 billion increase to rising interest rates.
The ten-year cost of the federal credit union tax exemption has grown by $9.4 billion since December, the Treasury Department said in an update on the cost of tax expenditures.
One source within the credit union community attributed the growth to rising interest rates.
In a report released last month, the Treasury Department estimated the cost of the tax exemption will be $34.72 billion between 2023 and 2032. In December, the Treasury Department estimated the cost to be $25.3 billion between 2022 and 2031.
The Treasury Department periodically re-estimates the cost of all personal and corporate tax breaks.
Impact of Rising Interest Rates
The credit union source, who asked not to be named, blamed the revised outlook on the increase in interest rates, noting the new estimate says it incorporates the economic estimates from the Biden administration’s Mid-Session Review. That review, the source added, incorporates a big increase in expected interest rates during the next several years.
The CU Tax Exemption in Context
Even with the increase, the credit union tax exemption is far from the largest expenditure in the tax code. It ranks 58th out of 169 personal and corporate tax breaks, the Treasury Department said.
And traditionally, credit union trade groups have said that the benefits the tax exemption provides to the economy far outweigh its cost.
What Comes Next?
The new estimate could, however, fuel renewed efforts by banking trade groups to push Congress to reexamine the credit union tax exemption. The Government Accountability Office has also called for a detailed examination of all tax expenditures.
The last member of Congress to publicly question the tax exemption was then-Senate Finance Chairman Sen. Orrin Hatch, R-Utah, in 2018. Hatch questioned whether the exemption was outdated and called on the IRS to require federal credit unions to file annual information returns with the agency in an attempt to ensure they were fulfilling the mission that Congress gave them.
Hatch retired from Congress that year, and despite pressure from banking trade groups, no current member of Congress has expressed interest in taking on the issue.
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