Executive Summary

This study evaluates the federal tax exemption for credit unions. It reviews the industry’s history, its unique exemption, the motivation behind this tax treatment, the eroding case for special treatment, the size of the tax break and its effects on credit unions, their competitors, and their members. President Bush has recently named a prestigious commission on tax reform to be chaired by former Senators Connie Mack (R-FL) and John Breaux (D-LA), so a fresh examination of the federal credit union tax exemption is indeed timely. Tax Loss to the Treasury Credit unions are growing rapidly, and so is the associated tax loss to the federal Trea-sury caused by their exemption. Indeed, the tax loss over the five-year period 2004-2008 is estimated in this study to be $12.6 billion. Extended over the typical ten-year federal budget window, the tax loss reaches $31.3 billion. The size of the tax loss is substantially higher than estimates prepared by govern-ment arbiters including the Office of Management and Budget or the Congres-sional Budget Office