Bender said there is a difference between a tax deduction which is made with the taxpayer’s own money and a tax credit, which merely reduces the total amount already owed on a tax bill. “Here the taxpayer owes that money to the government,” Bender said.
“The money in this case is not a charitable contribution,” he added.
“This is a very important philosophical point here,” Justice Samuel Alito said. “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?”
“No,” Bender replied. He said if the tax credit is taken from money already due, any donation to the tuition program is a payment with government funds.
Justice Anthony Kennedy, a potential decisive vote in the case, said he had “some difficulty” with the idea that an individual spending money the government doesn’t take as a tax is nonetheless still government money.
He said it would be like after accepting a 10 percent senior discount at a restaurant, hearing the cashier advise you to be careful how you spend her money.
At issue in the case is a private school tuition tax credit system set up in 1997 by the Arizona legislature. The system is designed to encourage parents and other Arizona residents to contribute to private school education in the state.
The program requires that donations be made to a School Tuition Organization (STO), which are private, non-profit groups set up to award scholarships from the donated funds. In 2009, there were 53 STOs. They received $51 million in donations.
Here’s the controversial part: Roughly half of the STOs only award scholarships to religious schools. In addition, most of the donated money flows through STOs that award scholarships at religious schools.
The key question in the case is whether Arizona’s program amounts to a government benefit program that favors religion, or whether it is a private choice program (set up by government) in which it is the private actors whose personal choices favor religion.