If it Quacks Like a Duck: in Light of Today’s Financial Environment, Should Credit Unions Continue to Enjoy Tax Exemptions?

• Publication year: 2010

Georgia State University Law Review

Volume 28 . , „

Article 13

Issue 4 Summer 2012

4-3-2013

If It Quacks Like a Duck: In Light of Today's Financial Environment, Should Credit Unions Continue to Enjoy Tax Exemptions?

Reed White

Follow this and additional works at: http://digitalarchlve.gsu.edu/gsulr Part of the Law Commons

Recommended Citation

White, Reed (2011) "If It Quacks Like a Duck: In Light of Today's Financial Environment, Should Credit Unions Continue to Enjoy Tax Exemptions?," Georgia State University Law Review: Vol. 28: Iss. 4, Article 13. Available at: http://digitalarchive.gsu.edu/gsulr/vol28/iss4/13

This Article is brought to you for free and open access by the College of Law Publications at Digital Archive @ GSU. It has been accepted for inclusion in Georgia State University Law Review by an authorized administrator of Digital Archive @ GSU. For more information, please contact digitalarchive@gsu.edu.

IF IT QUACKS LIKE A DUCK: IN LIGHT OF TODAY'S FINANCIAL ENVIRONMENT, SHOULD CREDIT UNIONS CONTINUE TO ENJOY TAX EXEMPTIONS?

Reed White*

Introduction

As our nation's deficit continues to grow¹ and the economic doldrums resulting from the market implosion of late 2007² stubbornly resist the U.S. government's fiscal³ and monetary⁴ responses,⁵ much attention has been given to congressional authorization of so-called "tax expenditures."⁶ By Congress's own

J.D. Candidate, 2012, Georgia State University College of Law. Special thanks to Suzanne and Hannah for their encouragement, and to Professor Ronald W. Blasi for his guidance.

1. The United States incurred a federal budget deficit of $1.41 trillion in fiscal year 2009 and approximately $1.3 trillion in fiscal year 2010. Cong. Budget Office, Monthly Budget Review Fiscal Year 2010, available at http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/119xx/doc11936/septembermbr.pdf. The CBO is an independent, nonpartisan agency of Congress that provides the House and Senate Budget Committees budgetary and economic information. Cong. Budget Office, 111th Cong., An Introduction to the Congressional Budget Office 1 (2010). Congress established the CBO in the Congressional Budget and Impoundment Control Act of 1974. Congressional Budget and Impoundment Control Act of 1974, Pub. L. No. 93-344, 88 Stat. 297 (1974) (current version at 2 U.S.C. §§ 601-688 (2006)).

2. According to the National Bureau of Economic Research, the last business cycle contraction lasted from December 2007 until June 2009. Nat'l Bureau of Econ. Research, US Business Cycles and Expansions, NBER.org, http://www.nber.org/cycles/cyclesmain.html (last visited Apr. 13, 2012).

3. Fiscal policy is "f]ederal government policy regarding taxation and spending, set by Congress and the [Executive] Administration." Fed. Reserve Bank of S.F., U.S. Monetary Policy: An Introduction 22 (2004).

4. Monetary policy is a "central bank's actions to influence short-term interest rates and the supply of money and credit, as a means of helping to promote national economic goals." Id. at 23. In the United States, the Federal Reserve System—which includes a Board of Governors based in Washington, D.C., and twelve Federal Reserve District Banks located throughout the country—serves the central bank function. Id. at 2.

5. See Cong. Budget Office, Pub. No. 4156, The Budget and Economic Outlook: An Update 12 (2010), available at http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/117xx/doc11705/08-18-update.pdf (revising the estimated total cost of Congressional "stimulus" action in 2009 from $787 billion to $814 billion because certain assumed variables—including the unemployment rate—have not responded as originally predicted).

6. See, e.g., Chye-Ching Huang & Hannah Shaw, Ctr. on Budget & Policy Priorities, New Analysis shows "Tax Expenditures" Overall Are Costly and Regressive (2009), available at http://www.cbpp.org/files/2-23-09tax2.pdf; John A. Tatom, Tax Found., Competitive Advantage:

1366 GEORGIA STATE UNIVERSITY LAW REVIEW [Vol. 28:4

definition, tax expenditures are "those revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability."⁷ Beginning in 1974, and pursuant to an effort to reduce federal spending and provide transparency to our nation's tax policies, Congress has included a list of tax exemptions⁸ and subsidies⁹ in its annual budget.¹⁰ Both the Office of Management and Budget (OMB)¹¹ (via the Office of Tax Analysis of the U.S. Treasury Department)¹² and the Joint Committee on Taxation (JCT)¹³ compile annual lists¹⁴ of estimated tax expenditures.¹⁵

A Study of the Federal Tax Exemption for Credit Unions (2005); U.S. Gov't Accountability Office, GAO-05-690, Government Performance and Accountability: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined (2005), available at http://www.gao.gov/assets/250/247901.pdf.

7. Congressional Budget and Impoundment Control Act of 1974, 2 U.S.C. § 622(3) (2006).

8. The United States has a long history of exempting certain public-serving and member-serving organizations from federal taxation. Paul Arnsberger et al., A History of the Tax-Exempt Sector: An SOI Perspective, Stat. of Income Bull., Winter 2008, at 105. This report was coordinated by the Statistics of Income (SOI) division of the Internal Revenue Service, which collects, processes, and publishes data pertaining to the effect that U.S. internal revenue laws have on both individual and corporate entities. SOI Tax Stats, IRS.gov, http://www.irs.gov/taxstats/article/0,,id=120314,00.html (last updated Jan. 23, 2012). The U.S. government first began publishing this information pursuant to the Revenue Act of 1916. Revenue Act of 1916, Pub. L. No. 64-271, 39 Stat. 756 (1916).

9. As defined by Norman Ture, former Undersecretary of the Treasury, the distinguishing attribute of a subsidy is that it "reduces the cost or the price of the subsidized product below the level that would prevail in a market unaffected by governmental policies or activities . . . [and] therefore, alters the relationship among costs and prices that would otherwise prevail." Joint Econ. Comm., 106th Cong., Tax Expenditures: A Review and Analysis 7 (1999). The Joint Economic Committee is a bicameral congressional committee composed of twenty members—ten from the House of Representatives, and ten from the Senate. Committee Background, Joint Economic Committee, http://jec.senate.gov/public/index.cfm?p=CommitteeBackground (last visited Apr. 13, 2012). The Committee's primary task is to "make a continuing study of matters relating to the US economy." Id. The Committee was created by the Employment Act of 1946. Employment Act of 1946, ch. 33, § 2, 60 Stat. 23 (1946) (current version at 15 U.S.C. § 1021 (2006)).

10. Joint Econ. Comm., supra note 9, at 2.

11. The OMB "is the largest component of the Executive Office of the President." Office of Management and Budget, White House, http://www.whitehouse.gov/omb/organization_mission/ (last visited Apr. 13, 2012). The OMB assists the President in overseeing the preparation of the President's budget and supervises the budget's administration by the Executive Branch agencies. Office of Mgmt. & Budget, Exec. Office of the President, OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget § 10:8 (2010).

12. The Office of Tax Analysis (OTA) is a division of the U.S. Department of the Treasury that "provides economic and policy analyses leading to development of the [Executive] Administration's tax proposals," along with assessing "major congressional tax proposals." Tax Policy: Tax Analysis, U.S. Dep't of the Treasury, http://www.treasury.gov/about/organizational-stmcture/offices/Pages/Office-

2012] TAX EXEMPTIONS FOR CREDIT UNIONS 1367

Like most matters involving the federal budget, the sheer size of the dollar amounts involved in an analysis of federal tax expenditures boggles the mind. According to one estimate, federal tax exemptions and subsidies in 2008 alone cost the federal government $987 billion of potential revenue.¹⁶ While other more notable exemptions such as the mortgage interest deduction¹⁷ and the favored tax rate of capital gains and qualified dividends¹⁸ are much larger in size,¹⁹ the tax

of-Tax-Analysis.aspx (last visited Apr. 13, 2012).

13. Originally established under the Revenue Act of 1926, the Joint Committee on Taxation is a nonpartisan committee of the United States Congress that operates with an experienced professional staff of Ph.D. economists, attorneys, and accountants who assist members of the majority and minority parties in both houses of Congress on tax legislation. Overview, Joint Committee on Taxation, http://www.jct.gov/about-us/overview.html (last visited Apr. 13, 2012).

14. Leonard Burman et al., Urban Inst., How Big Are Total Individual Income Tax Expenditures, and Who Benefits From Them? 1 (2008), available at http://www.urban.org/UploadedPDF/1001234_tax_expenditures.pdf. The Urban Institute (UI) was chartered based on the recommendation of a blue-ribbon panel commissioned by President Johnson in the mid-1960s. About the Urban Institute, Urban Inst., http://www.urban.org/about/ (last visited Apr. 13, 2012). The institute "gathers data, conducts research, evaluates programs, offers technical assistance overseas, and educates Americans on social and economic issues" in an effort "to foster sound public policy and effective government." Id.

15. OMB and JCT group their expenditure estimates in the same functional categories as the outlay categories used in the official federal budget. Joint Comm. on Taxation, 111th Cong., Estimates of Federal Tax Expenditures for Fiscal Years 2009-2013, at 26 (2010).

16. The $987 billion estimate included $878 billion for individuals and $108 billion for corporations. Jason Furman, The Concept of Neutrality in...