Â Â Â Â Arizona law grants taxpayers a dollar-for-dollar tax credit for contributions to School Tuition Organizations (STOs) that fund tuition scholarships for children to attend school.Â The three largest such organizations are affiliated with religious schools.Â The Arizona taxpayers challenging this law contend that the program violates the Establishment Clause of the Constitution because it is, in effect, a government subsidy of religion.Â The government takes the position that the plaintiffs have no standing to challenge the program because their tax money is not going to the religious schools, and that the program is "neutral" towards religion in the sense that individuals, not the government, decide whether the money will be spent for religious purposes.Â On November 3 the Supreme Court heard oral argument in this case.
Â Â Â Â Neil Katyal, Soliciter General of the United States, commenced by arguing that because no government funds were directed to religious institutions, the taxpayers lacked standing in this case to challenge the program.Â He said:
Not a cent of the Respondent's money goes to fund religion. If you placed an electronic tag to track and monitor each cent that the Respondent plaintiffs pay in tax, not a cent, not a fraction of a cent, would go into any religious school's coffers.
Â Â Â Â Justice Breyer asked the Soliciter General whetherÂ taxpayers would have standing to challenge a program whereby people instruct the government to pay their tax money to religious institutions.Â Katyal said that so long as the government did not discriminate among different religions or between religious and non-religious organizations, there would be no taxpayer standing in that case either:
JUSTICE BREYER:Â The taxpayers who are religious will be able to check a box and the check that they send to the IRS … what happens is that that check is cashed by an official and the cash is given to the local priest to say prayers for the individual who contributed the money. And in your view, there is no one who could challenge that?
GENERAL KATYAL:Â I don't think that any taxpayer could challenge that.
Â Â Â Â In response to that answer, Justice Ginsburg asked whether under the government's theoryÂ anybody would have standing to challenge the Arizona law.Â Katyal's response prompted another reaction from Justice Ginsburg:
JUSTICE GINSBURG: Counsel, does anyone have standing, in your view, to challenge this scheme?
GENERAL KATYAL: The way this scheme is set up, our answer is no.Â …
JUSTICE GINSBURG: … [I]sn't the underlying premise of Flast v. Cohen that the Establishment Clause will be unenforceable unless we recognize taxpayer standing?
GENERAL KATYAL: I don't see that, Justice Ginsburg, in Flast.
Â Â Â Â Justice Kagan pointed out to the Soliciter General that the Supreme Court has decided numerous Establishment Clause cases in which taxpayer dollars did not flow directly to religious organizations, but taxpayers nevertheless had standing to challenge the government programs in question:
JUSTICE KAGAN: So if you are right, General Katyal, the Court was without authority to decide Walz,Nyquist, Hunt, Mueller, Hibbs, [and] this — this very case, just a few years ago?Â That the Court was out of authority to decide any of those cases, but somehow nobody on the Court recognized that fact …?
Â Â Â Â After a bit of waffling, Justice Kennedy forced the Soliciter General to directly answer Justice Kagan's question:
JUSTICE KENNEDY: I just want to make sure I heard your answer to the — you said your answer is yes.Â In other words, you agree with Justice Kagan's criticism of those cases and you said, yes, she's right; those cases were wrongly decided.
JUSTICE KENNEDY: But you would have said there would have been no standing in those cases.
GENERAL KATYAL: No taxpayer — no taxpayer standing. …
Â Â Â Â Attorney Paula Bickett argued on behalf of the State of Arizona.Â Her first words clearly and concisely framed her argument:
Arizona's tuition tax credit does not violate the Establishment Clause, because it's a neutral law that results in scholarship programs of private choice. It's neutral because, like the tax deduction that the Court upheld in Mueller, it's one of many tax-saving devices, including some 26 other credits that are available to Arizona taxpayers on a neutral basis.
Â Â Â Â Justice Kagan asked Bickett why Arizona adopted such a complicated program for subsidizing private school tuition instead of a straightforward voucher system like Ohio's:
JUSTICE KAGAN: Ms. Bickett, could you explain something to me just — I have been puzzling and puzzling over this scheme. Can you tell me why Arizona adopted this sort of scheme rather than the more typical tuition voucher scheme? In other words tuition voucher schemes the state just gives the voucher or scholarship or what have you. This is so much more complicated and complex and unusual. And it just left me wondering why it was chosen or what the State thinks the advantages of it are now?
MS. BICKETT: Yes, Justice Kagan. One of the things that is true in Arizona that was not true in Ohio is that under the Arizona Constitution any direct aid to private schools is prohibited. The other thing about the tax credit program is that it does encourage contributions not only from parents but from the community at large. And this then provides money for low-income students, students from low-income families.
Â Â Â Â Justice Roberts considered it significant that the Arizona tax credit was limited to $500:
CHIEF JUSTICE ROBERTS: You only get — if you give a million dollars, you still only get a $500 tax credit, right?
MS. BICKETT: That's correct, Your Honor.
Â Â Â Â Justice Breyer asked a series of questions about whether the schools recieving this tuition money had to meet educational standards; he was assured that they did.
Â Â Â Â Justice Kennedy then asked Attorney Bickett a probing and difficult question:
JUSTICE KENNEDY: Suppose that an STO — this is a hypothetical case — discriminated on the basis of race. No Hispanic or no white or no black can receive our money. Suppose there is no Federal statute on it, no State statute prohibiting it. Would there be a constitutional violation, a Federal constitutional violation?
Â Â Â Â Essentially Justice Kennedy was asking Attorney Bickett whether the tuition tax credit program turned STO's into state actors; if their actions constitute state actions, then they could not discriminate on the basis of race.Â As Justice Kennedy pressed his point, Justice Scalia interrupted with a helping question:
JUSTICE KENNEDY: Don't you think a strong argument can be made that it [the racial discrimination] can be attributed to the State. The State has all sorts of rules about what an STO has to be. The State provides the mechanism through the credit for the funding.
JUSTICE SCALIA: I assume that there is a tax deduction for contributions to churches?
MS. BICKETT: Yes, Your Honor.
JUSTICE SCALIA: And many churches discriminate on the basis of religion, don't they.
MS. BICKETT: Yes, they do.
JUSTICE SCALIA: Does that pose a constitutional problem, do you think?
MS. BICKETT: No, Your Honor.
Â Â Â Â However, Justice Scalia's question prompted more questions, because the tax law draws a bright line between contributions to churches and contributions to religious schools.Â Contributions to religious institutions are tax-deductible even though the church may discriminate on the basis of race, gender, national origin, religion, sexual orientation, or any other ground, but contributions to educational institutions are not tax-exempt if the school discriminates on the basis of race.Â Justice Ginsburg jumped on the distinction, and Attorney Bickett accurately answered her question:
JUSTICE GINSBURG: There was a case in this Court, the name of it was Bob Jones. It was a private school and it discriminated on the basis of race. And the question was whether they could have tax-exempt status so that there could be donations to them. Do you remember the outcome of that case?
MS. BICKETT: Yes, Your Honor. The Court held that the Department of Revenue could preclude the university from having tax-exempt status because that violated public policy, and therefore they were not entitled to 501(c)(3) status.
Â Â Â Â Justice Kagan returned to Justice Kennedy's question about whether STOs are engaged in "state action" and approached the matter from a different angle:
JUSTICE KAGAN: Could I try Justice Kennedy's question in a slightly different way. I'm assuming that you would agree that if this was just a straight tuition voucher program, the State could not give tuition vouchers on the basis of religion, could not say, if you are a Catholic you don't get these tuition vouchers.Â But what the State has done here, apparently, is to set up a scheme that uses intermediaries that can make exactly that distinction, that can say, sorry, if you are a Catholic you don't get scholarships out of our STO.Â And the question is why should the State be able to do that?Â If the State can't do it itself in providing tuition vouchers, why should the State be able to set up a system using intermediaries that exist for no other reason than to administer this program that can make those distinctions?
MS. BICKETT: Your Honor, the State is not making those decisions. It's private organizations.
Â Â Â Â The basic question in this case is, "Is there a difference between a tax deduction and a tax credit for religious contributions?"Â Attorney Bicket asserted that there is not:
[T]here is not a significant difference between a tax credit and a tax deduction in terms of constitutionality.
Â Â Â Â Soliciter General Katyal had addressed the same issue when he was arguing that the taxpayers lacked standing to challenge the law, butÂ his remarks could cut either way:
I don't think James Madison's remonstrance would be satisfied if Madison were told: Well, you're not going to be taxed three pence, you will be taxed one pence.
Â Â Â Â On the one hand, we could interpret this to mean thatÂ if a tax deduction for religious purposes is constitutional, then the tax credit for the same purposes must be constitutional.Â Â On the other hand, the way that General Katyal phrased his argument implies that people are being "taxed" to support religious schools.
Â Â Â Â Attorney Paul Bender argued on behalf of the respondents, the taxpayers challenging the Arizona tuition tax credit program.Â He did not make the straightforward argumentÂ that this law was unconstitutional because the StateÂ of Arizona was endorsingÂ religion by giving money to STOs.Â Instead, he contended that the program was unconstitutional because the STOs were discriminating on the basis of religion; that the STOs were spending money they had received from the government and wereÂ discriminating against students based upon their religion.Â He stated:
MR. BENDER: … Our claim is not that money is going — that State money is going to religious schools.Â Our claim is that State money is being given to the beneficiaries of a State spending program on the basis of religion.Â It's a claim about discrimination in the distribution of these stated funds.
Â Â Â Â Attorney Bender ran into a blizzard of questions from Justice Scalia:
JUSTICE SCALIA: You can't have a government program that gives out money indiscriminantly to certain organizations that say provide hospital services, and it would be unconstitutional if that included organizations that were religious organizations, as well as organizations that were not. That would be unconstitutional?
MR. BENDER: Let me try to clarify.
JUSTICE SCALIA: So you must positively disfavor religion?
Â Â Â Â Attorney Bender was asserting that the STOs are distributing government money, and that it is unconstitutional for the government to grant money to an organization that grants or withholds services based upon the religion of the people whom they are serving.Â Chief Justice Roberts implicitly drew an analogy to Zelman v. Simmons Harris in which the Supreme Court had upheld a school voucher program that distributed funds to parents who were free to send their children to private or parochial schools, as they might select.Â Mr. Bender claimed that in this case the parents are not the recipients of government funds, the STOs are, and that unlike parents the STOs should not be permitted to discriminate on the basis of religion:
CHIEF JUSTICE ROBERTS: I thought we've held that when you have the decision is made by a private entity whether to use the money to go to a religious school or a nonreligious school, that that doesn't violate the Constitution because the decision is not made by the State, it is made by the private recipient.
MR. BENDER: I believe the Court held the opposite in Bowen, where the decision to use the money for religious purposes was made by the grantee, not made by the government. The government program in Bowen was completely religiously neutral. Grantees were given funds to educate adolescents in sexuality. The Court held — and Chief Justice Rehnquist wrote the opinion — that, although the program was constitutional on its face because — it wasn't unconstitutional because religious organizations could participate as grantees.Â It would be unconstitutional if those organizations distributed the benefits of the program on the basis of religion.
Â Â Â Â Attorney Bender and Justice Scalia debated whether or not the STOs are private actors or state actors:
MR. BENDER: The STOs are government grantees. They are distributing government funds. The Constitution prohibits organizations that distribute government funds as part of a government spending program to do it on the basis of religion.
JUSTICE SCALIA: That's a great leap to say that it's government funds, that any money the government doesn't take from me because it gives me a deduction is government money.
Â Â Â Â In an ominous sign for the taxpayers challenging this law, Justice Kennedy – the swing justice – expressed skepticism about whether the STOs were distributing government funds:
JUSTICE KENNEDY: I'll — I'll give you credit, Mr. Bender. In your brief you say if you are wrong on that point that you are folding your tent and leaving, there's –that there is no standing and that there's no — no violation. But I must say, I have some difficulty that any money that the government doesn't take from me is still the government's money.Â (Laughter.)
JUSTICE KENNEDY: Let me ask you. If — if you reach a certain age, you can get a — a card and go to certain restaurants and they give you 10 percent credit. I think it would be rather offensive for the cashier to say, "and be careful how you spend my money." (Laughter.)
Â Â Â Â It is also not a good omen when the gallery is laughing during your oral argument!Â
Â Â Â Â Mr. Bender argued that STOs would not have received these funds except for the state's tax credit tuition program, prompting Justice Alito to ask how this was different fromÂ tax deductions that encourage charitable giving:
MR. BENDER: … With respect, Justice Kennedy, the money that's involved in this case is money that is generated by imposition of the State's income tax, not by non-imposition of it. If there were no State income tax there would be no tax credit program.
JUSTICE ALITO: Would you say the same thing about a tax deduction?
MR. BENDER: No, I wouldn't because … when a taxpayer makes a charitable deduction, that charitable deduction is made from the taxpayer's money. At the time the taxpayer makes that deduction, the taxpayer can do anything he wants with that money. That's not true of this tax credit. At the time this tax credit is taken, the taxpayer owes the government, let's say, $5,000 in State income taxes. You've got to pay that $5,000. You can't keep it. It's not your money. You can't keep it. It's not that all of your money is the government's money; it's that this $5,000 that you owe the government as income taxes is the government's money.
JUSTICE ALITO: Why isn't this true of a tax deduction also? And this is a very modest tax credit. The tax deduction that a wealthy person would get by making a contribution to a college or university that has a religious affiliation is much more valuable than this $500 credit.
Â Â Â Â Bender and Alito continued to argue whether the money that is contributed to STOs is the equivalent of government funding:
JUSTICE ALITO: … There is a very important philosophical point here. 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.
JUSTICE ALITO: That's what your whole argument is based on.
MR. BENDER: No, it isn't, Justice Alito. My argument is that if the government imposes an income tax, and people owe the government a certain amount of money in income taxes due, that — and the government says you don't have to pay it to us, you can pay it to a STO, that that is a payment of government funds.
Â Â Â Â Justice Breyer asked Mr. Bender to distinguish the voucher program upheld inÂ Zelman from this case:
JUSTICE BREYER: … So what's the difference between the program here and the one that was held constitutional in Zelman?
MR. BENDER: The difference is that in Zelman the money went to the parents without any religious discrimination. Religion was not involved in the distribution of the money to the parents. The parents in Zelman got funds based on their financial need and the fact that their children went to school in Cleveland, which was a failing school district. And the program was to give them, based on their financial need, was to give them a voucher.
In giving a parent a voucher, nobody said to the parent, what's your religion? Nobody said to the parent, are you going to send your child to a religious school? The Court said as clearly as it could in Zelman that that would be unconstitutional.
JUSTICE BREYER: But who here says to the parent who is going to the school, what is your religion?
MR. BENDER: The STO who gives them the scholarship.
Â Â Â Â Justice Scalia was still skeptical of Mr. Bender's argument, so Attorney Bender asked the Justice a question, which the Justice promptly answered:
MR. BENDER: Let me — let me put it to you this way, Justice Scalia. Suppose the government in this case gave the money to the STO's directly itself, and the STO's then gave out the scholarships. Would it be constitutional for an STO to say to a parent who comes asking for a scholarship, are you Catholic? If you're not, we won't give you a scholarship.
JUSTICE SCALIA: Perhaps not, but you have …
MR. BENDER: What's the difference?
JUSTICE SCALIA: — You have an intervening parent or contributor. And it's that person who is making the decision of whether to give it to a religious or nonreligious organization; it isn't the government making that decision.
Â Â Â Â Attorney Bender reiterated that the taxpayers' challenge to the Arizona tax credit program depended entirely upon their allegation that the STOs were discriminating against parents and students on the basis of religion, and he admitted that if STOs were prohibited from discriminating on the basis of religion, the program would be constitutional:
JUSTICE BREYER: Suppose they change one rule and the rule that the STOs had was this, they said: We will give you tuition if you otherwise qualify for your child to go to the school that you wish to go to, and if you are Jewish or you are Protestant and you want to go to St. Joseph's Catholic school, that's absolutely fine, they won't kick you out, and vice versa. Now, in your opinion that then would be constitutional?
MR. BENDER: Yes. We only challenge …
JUSTICE BREYER: The answer is yes?
MR. BENDER: Yes.
Â Â Â Â In the course of an extended colloquy with Justice Scalia, Mr. Bender reaffirmed that private persons are donating money to an STO is not unconstitutional; it is the fact that the STO is discriminating against students on the basis of religion that makes this program unconstitutional:
MR. BENDER: There is nothing unconstitutional about the taxpayers sending the money to an STO. If STOs did not discriminate on the basis of religion in giving that money out, there would be no unconstitutionality.
Â Â Â Â Asked once again about the difference between a tax deduction for donations to a church and a tax credit, Bender implicitly asserted that a tax credit is in effect the same as a government subsidy:
MR. BENDER: If the government said to you: You can pay your taxes — don't pay your taxes to us, pay them to a church, and the church gave its benefits only to people of a certain religion, I believe that would be unconstitutional.
Â Â Â Â The Chief Justice elicited the admission that a tax deduction would have been constitutional:
CHIEF JUSTICE ROBERTS: Excuse me. Just to follow up on Justice Scalia's question, because I want to make sure we have the answer: If this system were set up exactly as it is now, but Arizona said contributions to STOs are deductible, you would have no problem?
MR. BENDER: Contributions to STOs are deductible from one's income tax?
CHIEF JUSTICE ROBERTS: Right.
MR. BENDER: No, we would not have a problem with that.
Â Â Â On rebuttal Soliciter General Katyal reiterated his argument that the taxpayers lack standing to challenge this program because their tax dollars weren't being channelled to STOs.Â He also made a fundamental point about charitable organizations that receive tax deductible contributions:
GENERAL KATYAL: … I think it's this Court's precedence [sic] are quite clear in saying that the fact that the government regulates or funds something doesn't transform it into a state actor.Â If it did, then all 501(c)(3)'s would become state actors, and that, I think, would be an enormously damaging precedent for this Court to follow.
Â Â Â Â Soliciter General Katyal is correct in saying that merely because an organization receives some government funding does not make it a "state actor" for purposes of the Constitution.Â For example, a military contractor that derives 100% of its income from government procurement contracts is still a private actor that is not subject to the requirements of the Constitution.Â If a contractor were to discriminate on the basis of race or interfere with the privacy rights of its employees it might violate civil rights statutes but it would not violate the Constitution.
Â Â Â Â On the other hand, if the government were to grant funding to a private agency to perform certain services such as child care or drug addiction treatment and that agency were to discriminate on the basis of race, religion, or national origin, that might well be a violation of the Constitution.Â Â There is a good reason that recipients of funding under government grants have to agree not to discriminate in the performance of their duties under those grants – otherwise the government could accomplish unconstitutional purposes by simply delegating the task to private entities.Â Under both President Clinton's "Charitable Choice" program and President Bush's "Faith-based Initiative," religious organizations receiving government grants for social service programs would not have been allowed to discriminate among clients on the basis of religion or other factors.
Â Â Â Â In this case the Supreme Court will decide whether the Constitution of the United States prohibits the State from fully subsidizing contributions to private organizations thatÂ are permitted to discriminate on the basis of religion.
Wilson Huhn teaches Constitutional Law at The University of Akron School of Law. Visit his website for background and information about the Constitution, as well as links to other sites devoted to Constitutional Law.