Fungibility Part Two: A Taxing Opinion

By Mike Dorf

Speaking of the fungibility of money--which I was speaking about just yesterday--what should one make of last week's Supreme Court decision in Arizona Christian School Tuition Organization ("ACSTO") v. Winn?  The case holds that taxpayers lack standing (qua taxpayers) to bring an Establishment Clause challenge to a state tax credit for those who donate to organizations that provide private school scholarships, including scholarships for private religious schools that discriminate on the basis of religion.  The plaintiffs argued that the state could not--consistent with the Establishment Clause--directly fund religious discrimination, and so it could not do it through the tax code.

That argument might be wrong on the merits.  After all, a line of Supreme Court cases holds that where the government makes some benefit (such as a sign-language interpreter or private school vouchers) available to private parties, the fact that some of those private parties use the benefit in a religious institution does not amount to an Establishment Clause violation--so long as the benefit is available for use at both religious and non-religious institutions.

But the Court did not say in ACSTO that the plaintiffs lost on the merits.  The Court said that a federal court could not adjudicate the merits because the taxpayers who objected to the tax credit were not injured by it.  Prior cases had established that in general a taxpayer lacks standing to complain about the unlawful expenditure of government funds.  The 1968 case of Flast v. Cohen recognized an exception to the no-taxpayer-standing rule for Establishment Clause cases, but more recent cases have read Flast so narrowly that the exception was virtually unavailable.  ACSTO narrows the Flast exception even further, if that's possible.

As Justice Kagan's dissent makes clear, the basic reasoning of ACSTO is hard to take seriously.  She gives the following hypothetical example:
[A]ssume a State wishes to subsidize the ownership of crucifixes.  It could purchase the religious symbols in bulk and distribute them to all  takers.   Or it could mail a reimbursement check to any individual who buys her own and submits a receipt for the purchase.  Or it could authorize that person to claim a tax  credit equal to the price she paid.  Now, really—do taxpayers have less reason to complain if the State selects the last of these three options?  The Court today says they do, but that is wrong. 
Post-ACSTO, a taxpayer would still have standing to challenge the government's direct purchase of crucifixes and the government's mailing of reimbursement checks to crucifix purchasers but would lack standing to challenge the tax credit.  As Justice Kagan explains--and really, as should be patently obvious to anyone with at least a fifth-grade education--this makes no sense whatsoever.

The best I can say about the majority opinion is that the justices who signed onto it probably don't believe what they wrote.  That is, perhaps this is just another effort to inch closer to completely overruling Flast (as Justice Scalia has urged in the past and as he urged again in a concurrence in ACSTO).

But is it possible that Justice Kennedy (who authored the Court's opinion) and CJ Roberts and Justice Alito (who joined without joining the Scalia concurrence) actually do think there is something to the distinction between expenditures and tax credits?  Remarkably, there are hints that this may be so.  The plaintiffs argued that unlike a tax deduction, a tax credit is economically identical to a cash payment from the government.  Here is the Court's response:
But what matters under  Flast is whether sectarian [organizations] receive government funds drawn from general tax reve­nues, so that moneys have been  extracted from a citizen and handed to a religious institution in violation of the citizen’s conscience.   Under that inquiry, respondents’argument fails.  Like contributions that lead to charitable tax deductions, contributions yielding . . . tax credits are not owed to the State and, in fact, pass directly from tax­payers to private organizations.   Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands.  That premise finds no basis  in standing jurisprudence.
If the Court is saying that a tax credit--unlike a tax deduction--doesn't pass through the state treasury, that's just wrong: Imagine a taxpayer who, but for the credit, would have a zero balance on his tax return: He gets the exact same size check from the state under the tax-credit-for-crucifxes as the reimbursement-for-crucifixes scheme.

Accordingly, we might read the Court to be saying something narrower--not that tax credits can never give rise to taxpayer standing but that tax credits for individual donations to religious organizations do not give rise to taxpayer standing because the donations aren't being made by the government.  To be sure, this reading makes the ACSTO opinion a mess for a different reason: it confuses the standing question with the merits question.  If this is what the Court means, then in Justice Kagan's hypothetical example, there would be standing to challenge the crucifix tax credit because it's the government that has decided to give tax credits for a specifically religious item.  And that's hard to square with the majority's focus on whether the money has come into the tax collector's hands rather than with who directs where it goes from there.  But at least reading the opinion this way does not require one to assume that five justices of the Supreme Court don't understand what a tax credit is.