Tax Credits, The Church, and The State

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October 19, 2010; Source: Pew Research Center (Pew Forum on Religion & Public Life) |The day after Election Day, the U.S. Supreme Court will hear two cases about the ability of nonprofit groups to use state tax credits to provide scholarships for children to attend private, often religious, schools. The cases are Arizona Christian School Tuition Organization v. Winn and Arizona Department of Revenue v. Winn. Why Arizona? The state has a very controversial state law allowing residents (including corporations) to receive a dollar-for-dollar tax credit ($500 for individuals, $1,000 for married couples) for donations to nonprofits that provide scholarships to public school students to attend private schools.

Arizona law permits tuition organizations to place kids only in religious schools. More than half of the money donated under the program in 2009 went to students attending religious schools. Kathleen Winn and other taxpayers charged that the Arizona tax credit law violated the Establishment Clause of the First Amendment. The question that ought to be before the Court is whether the Arizona tax credit law, no matter how neutral its design, actually operates to promote religion by virtue of the large sum going to religious schools, that is, challenging the law “as applied.”

Perhaps the Court will question whether a dollar-for-dollar tax credit is really a charitable contribution as opposed to the equivalent of a government revenue expenditure (since government loses one buck for every dollar put toward the tax credits). In response, the state might argue that the donor can contribute to whomever he or she wants to, and families have sufficient secular alternatives to the religious schools to give to. Under these conditions they may argue, the state has not violated the Establishment Clause.

The Supremes might choose not to get to that question if they conclude that Winn and her taxpayer co-plaintiffs lack standing to challenge the tax credit law. There are other problems with the Arizona law, for example, the tax credits haven’t gone to lower income families as the law directed. The state’s oversight of this law has been scandalous and pathetic, but the Court will be looking for something other than the dysfunctionality of Arizona’s program oversight operations. Nonprofits have a vested interest in this case, as it affects other states that might be contemplating Arizona-like laws.—Rick Cohen