Religious School Case Morphs Into Tax Debate at U.S. High Court

A religious-school funding case at the U.S. Supreme Court morphed into a philosophical clash over the government’s taxing power.

The day after a congressional election that focused on taxes and government spending, the justices held their own debate on the subject in Washington. They are considering the constitutionality of an Arizona tax credit for donations to organizations that provide scholarships at private schools.

The outcome may hinge on how the court classifies the money that flows to those organizations: as government funds that must be distributed in a religiously neutral way or as private money that individuals can spend as they wish. Several of the court’s Republican appointees signaled they favored the latter interpretation and were poised to uphold the program.

“This is a very important philosophical point here,” Justice Samuel Alito said to a lawyer challenging the Arizona system. “You think that all the money belongs to the government except to the extent that it deigns to allow private people to keep some of it.”

The justices are reviewing a federal appeals court decision that let a group of taxpayers press a challenge to the Arizona program, which has been in effect since 1997. The taxpayers say the program violates separation of church and state by using religious organizations to award scholarships and letting those groups require that recipients enroll in sectarian schools.

Obama Stance

The Obama administration is joining Arizona officials in defending the tax credit. Acting U.S. Solicitor General Neal Katyal argued today that the taxpayers lack the legal right, or standing, to have a court consider their suit because “not a cent” of their money goes toward funding religion.

That contention got considerable traction among the court’s Republican-appointed justices, including Antonin Scalia and Anthony Kennedy.

“This money has never been in the government’s coffers,” Scalia said. “The government has declined to take this money.”

Kennedy, often the court’s swing vote on religion issues, said he had “some difficulty” with the notion that “any money that the government doesn’t take from me is still the government’s money.” He also aimed skeptical questions at the government lawyers defending the program and didn’t clearly indicate how he will vote.

Who owns the money is a central question because of a 1968 ruling that said taxpayers could challenge statutes that directed government money to be spent for religious purposes. That decision, known as Flast v. Cohen, marked an exception to the general rule that Americans can’t go to court to contest how their tax dollars are spent because they don’t have enough of an individual stake in the outcome.

Tax Credit

The taxpayers challenging the Arizona program say it is government money that reaches the so-called school tuition organizations, known as STOs. The Arizona tax credit is unusual because it applies after taxpayers have computed how much they owe for the previous year. At that point they can send as much as $500 to an STO, reducing their tax liability by the same amount.

That structure makes the Arizona program different from tax deductions that kick in only after a person makes a contribution to a church or other charitable organization, said Paul Bender, the lawyer representing the challengers.

“This is not private charity,” Bender said.

Bender drew words of support from the court’s four Democratic appointees, led by Stephen Breyer and Elena Kagan. Breyer said Katyal’s position eviscerated the 1968 Flast ruling.

Kagan, who was Katyal’s boss when she was solicitor general, said the government lawyer’s position would have stripped the court of authority to decide a half-dozen cases it considered in recent years.

The court ruled in 2002 that tax-funded school vouchers are constitutional so long as parents have a “genuine choice” not to send their children to religious schools.

The cases are Arizona Christian School Tuition Organization v. Winn, 09-987, and Garriott v. Winn, 09-991.

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