Case Has Far-Reaching Implications for Religious Freedom and Education

Last Updated: April 27, 2011

This article appeared in the April 2011 Rural Policy Matters.

The U.S. Supreme Court has refused to hear a challenge to an Arizona law that grants a tax credit to taxpayers who designate a portion of their state tax bill to privately-run organizations that provide scholarships to religious and private schools. In turning down the case, the Court ruled that the taxpayer plaintiffs lacked “standing,” that is the right to bring a lawsuit. The Court’s decision allows the Arizona tax credit to continue, and it narrows previous interpretations of a 1968 Supreme Court ruling that generally grants standing to taxpayers in cases involving the Establishment Clause of the First Amendment to the U.S. Constitution. The Establishment Clause bans the government from establishing religion or using public funding to support religious activity.

The Arizona tax credit program requires the tuition organizations to spend 90% of their available funds on “qualified” schools, which are defined as schools that do not discriminate on the basis of race, color, handicap, familial status, or national origin. Although the law prohibits tuition organization from providing funds to only one school, it allows tuition organizations to grant scholarships only to families who agree to send their child to a religious school.

Plaintiffs in Arizona Christian School Tuition Organization v. Winn claimed that using the tax system in this way amounted to government financial support of religious schools.

Unlike charitable deductions, which reduce a taxpayer’s tax liability, tax credits transfer a portion of the taxes owed to the designated entity. Last year more than $43.2 million in Arizona tax revenue was provided to the tuition scholarship organizations through the tax credit provision.

Although legal precedent has long held that taxpayers generally do not have standing to challenge the uses of tax revenues, the Supreme Court made an important exception for the Establishment Clause in its 1968 Flast ruling. Writing for the majority in Flast, then-Chief Justice Earl Warren asserted that the Establishment clause is so essential in guarding against abuses of government power that taxpayers, in most cases, do have standing to bring lawsuits where government support of religious activity is at issue. Referencing James Madison, the architect of many of the religious clauses of the First Amendment, Warren wrote: “The concern of Madison and his supporters was quite clearly that religious liberty ultimately would be the victim if government could employ its taxing and spending powers to aid one religion over another or to aid religion in general. The Establishment Clause was designed as a specific bulwark against such potential abuses of governmental power…”

By denying standing to the plaintiffs, the Supreme Court sidestepped the question of whether the Arizona tuition program is constitutional on the grounds of separation of church and state.

However, in re-interpreting Flast, it significantly reduces the avenues through which taxpaying citizens can legally challenge government support of religion. In addition, the Court effectively redefined “harm” as it applies to the Establishment Clause. In the past the “harm” was simply that government was channeling money to a religious entity. This court defined harm as some kind of personal financial loss to the taxpayer challenger, thus raising an additional barrier to church and state challenges.

The Court also used its opinion to reach into another important area of established American law. Specifically, Justice Anthony Kennedy, writing for the majority, framed the tax credit as belonging to the individual rather than the government.

With this distinction in place governments are much freer to create tax credit mechanisms to divert assessed taxes into projects for which government spending would be unconstitutional.

Writing for the dissent, Justice Elena Kagan asserted that no court since the Flast case had differentiated between sources of funding in deciding whether plaintiffs had standing in Establishment Clause cases. “Cash grants and targeted tax breaks are means of accomplishing the same government objective — to provide financial support to select individuals or organizations. Taxpayers who oppose state aid of religion have equal reason to protest whether that aid flows from one form of subsidy or the other. Either way, the government has financed the religious activity. And so either way, taxpayers should be able to challenge the subsidy.”

Continuing, Kagan wrote, “Still worse, the Court’s arbitrary distinction threatens to eliminate all occasions for a taxpayer to contest the government’s monetary support of religion. Precisely because appropriations and tax breaks can achieve identical objectives, the government can easily substitute one for the other. Today’s opinion thus enables the government to end-run Flast’s guarantee of access to the Judiciary. From now on, the government need follow just one simple rule — subsidize through the tax system — to preclude taxpayer challenges to state funding of religion.”

The decision in the Arizona case opens the door for the creation of tuition tax credit programs in other states. Although the programs will vary depending on the state, many tax credit programs will likely provide public funding to cover costs in private schools that selectively admit students based on income (including high income), race, or religious affiliation or belief. For example, the many private schools, often bearing religious names and sometimes sponsorships, that sprang up in the South in the 1960s and ’70s in response to the court-ordered desegregation of public schools could be eligible to receive tax-sponsored scholarships.

Tuition tax credits have the potential to alter dramatically the ways schools are funded by shifting public funding away from public school systems obligated to provide education to all-comers and toward discriminatory schools that offer education to a select few.

The decision in Winn is likely to have far-reaching implications in and out of the classroom.

For more information and links, see Arizona Taxpayers Barred from Challenging Tuition Tax Credit Program in Rural School Funding News.

Read more from the April 2011 Rural Policy Matters.