Winn v. Arizona Christian STO: The Supreme Court muddles through tax and religion.

Winn v. Arizona Christian STO: The Supreme Court muddles through tax and religion.

Winn v. Arizona Christian STO: The Supreme Court muddles through tax and religion.

The law, lawyers, and the court.
April 5 2011 7:08 PM

Get Your Hands Off My Tax Deduction

The Supreme Court muddles through tax and religion.

U.S. Supreme Court Associate Justice Anthony Kennedy. Click image to expand.
Justice Anthony Kennedy

When Congress convened this year, the new Republican majority quickly introduced a series of bills to flex their expanded conservative political muscle, among them, HR 3, the No Taxpayer Funding for Abortion Act. Despite its name, however, the act extended beyond government expenditures. Stretching the definition of "taxpayer funding," it sought to eliminate the tax deductibility of all health plans that provide any abortion coverage, even privately funded plans. Liberals were particularly incensed by the supposed limited-government conservatives who suddenly believed that a tax benefit permitting people to keep a bit more of the money they earned is tantamount to a direct government expenditure when they choose to spend it on a health plan that provides abortion coverage.

Given the ideological lineup in the recent debate over this distinction between tax benefits and direct government spending, a logical observer might have predicted how the conservatives and liberals on the Supreme Court would line up in Arizona Christian School Tuition Organization v. Winn, decided yesterday by a 5-4 margin. But as with so much else in Washington, logic is a poor guide.

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Both the disingenuous congressional debate over the No Taxpayer Funding for Abortion Act and the disappointing Establishment Clause discussion in Winn serve to reinforce the strength of the one seemingly immutable rule of Washington life: Mile's Law. Coined by Rufus Miles in the late 1940s, it posits that where one stands on any issue is determined solely by where one sits, not by notions of intellectual consistency and rigor.

At issue in Winn was an Arizona law that provides a tax credit to individuals and corporations for contributing to scholarships that help needy students attend private schools, including religious schools. Most charitable contributions, in Arizona and elsewhere, entitle the donor to an income tax deduction. But those deductions are far less valuable than the dollar-for-dollar reduction in tax liability provided by the Arizona tax credit. Because of that, and because so many of these scholarship or school-tuition organizations, or STOs, underwrite attendance at religious schools, plaintiffs argued that the tax-credit program violated the Constitution by impermissibly allowing the STOs to "use State income-tax revenues to pay tuition for students at religious schools."

But five Justices, in an opinion by Justice Anthony Kennedy, determined that a tax credit for a private expense is quite different from an expenditure by the government. Four justices protested that there is no practical distinction between a tax benefit and a direct government expenditure, and that there ought to be no legal distinction when religious education is a beneficiary.

In this case, however—unlike in the abortion context—it was the liberals seeking to equate private and public spending, referring to private donations as "diverted tax revenue" and arguing that "either way, the government has financed the religious activity." Meanwhile, this time it was the conservatives who could not understand how anyone could believe that "income should be treated as if it were government property even if it has not come into the tax collector's hands," and declaring that "private bank accounts cannot be equated with the state Treasury."

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Given the court's recent Establishment Clause decisions—the court has upheld a tax credit program in Minnesota and has given the green light to Ohio's voucher program—the Winn plaintiffs would have had a difficult time convincing the court to strike down the Arizona program. But the battle in Winn never even reached that issue. Instead, Justices Kennedy and Elena Kagan (in her first dissent) spent more than 40 pages arguing over whether the plaintiffs had standing—that is, whether they even had the right to walk into a courtroom and file suit.

Individuals don't ordinarily have standing to challenge government action or spending merely because they are taxpayers. That prevents us from running to the courthouse every time we disagree with a particular government expenditure on a highway or ditch. However, in 1968 the Supreme Court created an exception to that general rule disallowing taxpayer standing. As Kagan explained, in that case, Flast v. Cohen, the court granted standing to "taxpayers alleging that the government is using tax proceeds to aid religion." The idea was that there may often be no other way to challenge government expenditures on religion.

Here's where Kennedy and Kagan mixed it up. Kennedy and the court's conservative bloc believe that for funds to be considered tax proceeds, they have to actually hit the state coffers first.  Kagan and her liberal colleagues think that elevates form over substance and that what is most important is the fact that tax incentives and cash grants can both accomplish the same objective aiding religion.

At first blush it appears that Kennedy has the better argument. After all, one doesn't have to be a card-carrying member of the Tea Party to be sympathetic to the difference between money paid to the Treasury and funds on which tax is forgone. Even someone who is never going to avail herself of the Arizona tax credit can intuit that private funds do not belong to the government unless and until paid over to them.

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The problem for Kennedy is that the distinction between direct government spending and a tax-benefit program is not one that has ever previously been recognized as constitutionally significant for purposes of determining taxpayer standing.

As Justice Kagan points out in her powerful dissent, since creating the Flast exception, the Supreme Court has been presented with five separate challenges to tax-benefit programs by plaintiffs who invoked taxpayer standing. In each of those five cases, the court reached the merits of the claim even though the challenged program did not involve any direct government expenditure. Kennedy's rather weak retort is to note that while standing may have been assumed in each of those cases, the question wasn't explicitly addressed in any of them. His implication is that in five hard-fought Establishment Clause cases argued over a period of many years, the court, the parties and the solicitor general all somehow failed to notice the plaintiff's lack of standing to even bring the lawsuit. It's hard to tell whether Kennedy actually believes that claim or if he is merely ignoring prior cases whose holdings he now finds inconvenient.

Of course, as in all dramas that unfold in Washington, Justice Kagan can't resist taking her strong hand and overplaying it. So after convincingly arguing that the court's standing jurisprudence does not distinguish between direct expenditures and tax benefits, she proceeds to argue—unnecessarily and far less persuasively—that there is also no actual difference between the two. In so doing, she ignores both precedent and common sense.

Worse, Kagan attempts to bolster her decision to equate tax benefits and direct expenditures with the observation that public protest over Wall Street bailouts would not be quelled if the bailout took the form of tax write-offs instead of cash infusions. She may be right, but who cares? When the challenges to the health care law make their way to the Supreme Court, Kagan and her colleagues will not employ a barometer of constitutionality that takes into account the extent of any public protest.

Kagan's move from rigorous scholarship to political sloganeering is complete when she purports to describe how the tax credit works. To hear Kagan tell it, to claim the tax credit, each April 15 an Arizona taxpayer "makes a notation on her tax return and splits her tax payment into two checks, one made out to the State and the other to the STO." Thus, she argues, "the funding of religion ... comes from a tax credit." But as anyone who has ever completed a tax return and itemized deductions knows, that is not how things work. Donors write checks long before their tax liability is determined, or even owed.

The debate about Winn will soon be forgotten and the No Taxpayer Funding for Abortion Act will not be enacted into law. But all of the intellectual and ideological gerrymandering, on both sides of the aisle, is both exhausting and disappointing. Both debates do nothing to inform our understanding of when and whether tax benefits should be distinguished from direct government spending and merely convince a disenchanted public that those in power in Washington will make arguments that suit them at the moment but will thereafter be discarded.

As every child knows, "consistency is the hobgoblin of little minds." Can't those in Washington give us at least that.