2019 Journal of Community Bank Case Studies

Eastern Kentucky University

SECOND PLACE:

By cross-referencing benefits from the 2017 tax reform and credit union tax exemption, our research suggests that tax liabilities for community banks should be reconsidered. That is, since small community banks share many similarities with credit unions, perhaps they should be required to pay less in taxes than larger banks. As a result of a lessened tax burden, community banks nationwide would likely follow Kentucky Bank’s example of raising employee wages. If community bank salaries were increased by 2% to 5%, this would increase employee wages $847,701,220 to $2,119,253,050 raising total community bank wages to $43,232,762,220 -$44,504,314,050. The actual economic impact, however, would be considerably greater. To illustrate, a recipient of a wage increase will spend a portion of their new earnings on a purchase they otherwise would not make, perhaps on a home renovation. The purchase of that renovation would result in increased revenue for the materials vendor, the contracting company, the employees, etc. Each of these parties would then spend their money, continuing the cycle of consumption far beyond the initial consumer.

cents and save 40 cents, their MPC would be .60 and their MPS would be .40. The formula for a simple spending multiplier is 1/MPS . If we assume that employees would save forty to sixty cents out of every new dollar earned, we would have resultant multipliers of 1/.40 =2.5 and 1/.60 = 1.67. This means that an increase in wages of two to five percent for community bank employees nationwide could result in an increase in spending of $1,415,661,037 and up to $5,298,132,625. This means that GDP (Y=C+I+G+NX where C represents consumption) could potentially increase by over $5 Billion if community banks were afforded a lessened tax burden than large banks and other corporations. management team stressed that they are not opposed to banking technology as they invest in secure methods that allow their customers to enjoy the convenience of online banking. Instead, they spoke in reference to Fintech growth, regulation and its impact on customer service. The emergence of “non-banks” offering The topic of Financial Technology was also discussed with Kentucky Bank. The

We can utilize a simple spending multiplier to evaluate the economic impact this increase would have on GDP. To generate the multiplier, we can estimate the marginal propensity to consume and marginal propensity to save for the employees receiving a wage increase. That is, for every dollar of newly earned income, if an employee chose to spend 60

Economic Impact of Decreased Tax Burden on Community Banks Using Multiplier 1/MPS of 1/.40=2.5 and 1/.60=1.67 where Y=C+I+G+NX

$6,000,000,000 $5,000,000,000 $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 $0

2%Wage Increase

5%Wage Increase

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