Next year, Illinois voters will be asked whether we should amend Illinois’ constitution and change our flat income tax to a graduated income tax rate. Illinois taxpayers should consider whether now is the time to also end the antiquated income tax exemption for credit unions in Illinois.
Credit unions have evolved from their original mission and today compete directly with taxpaying community banks by offering the exact same financial products and services. While credit unions originally were created to serve people with common bonds and modest means, the industry has capitalized on its tax exemption to evolve into a $1.4 trillion industry nationally with a $46.4 billion footprint in Illinois.
Most consumers do not know the difference between a credit union and a bank, yet it is likely they would be less than thrilled to know they are paying more in taxes than an entire multibillion-dollar industry. While Illinois credit unions pay $0 in state or federal income taxes, the average family of four in Illinois pays almost $9,000 in federal income taxes and more than $3,000 in state income taxes each and every year. This is just not right.
The Illinois credit union industry is made up of 254 federally-insured credit unions, which raked in $262 million in combined net income last year. Their estimated federal tax bill would have been almost $55 million. And if the 16 largest Illinois credit unions – each larger than all but a few Illinois banks – had paid taxes on their $218.6 million in net income last year, the State of Illinois would have received between $20 to $27 million in additional tax revenue in 2018 alone. Yet they paid nothing – $0 – to help the State of Illinois serve its citizens.
At the same time last year, three of Illinois’ largest credit unions – Credit Union 1, Scott Credit Union, and CEFCU – purchased naming rights for sports stadiums and penned exclusive sponsorship deals with sports teams, instead of paying their fair share of taxes. Credit Union 1, with more than $1 billion in assets, bought the naming rights to the University of Illinois-Chicago’s UIC Pavilion for $9.3 million. The $1.2 billion Scott Credit Union paid millions for exclusive sponsorship deals with the St. Louis Blues and St. Louis Cardinals. CEFCU, Illinois’ second largest credit union with nearly $6 billion in assets, paid $8.7 million for the exclusive naming rights to the San Jose State University football stadium, in California.
Needless to say, these funds could have been better utilized by the State of Illinois for the benefit of Illinois residents.
Regardless of where you stand on the graduated income tax proposal, the time is well past due for credit unions to pay their fair share of taxes in Illinois. A major step in the right direction would be to tax the largest credit unions that tower over the majority of banks in Illinois. All working families in Illinois would benefit by ending the tax-free ride of Illinois’ largest credit unions.
President, Council for Sound Tax Policy