The Supreme Court yesterday handed down a decision (ACSTO v. Winn) that experts consider a win for proponents of parental choice in education. But the case has other significant ramifications for charitable giving, as explained by National Christian Foundation’s President, David Wills:
Tuesday’s ruling on parental choice in education is undoubtedly a significant victory for several states, including my home state of Georgia. However, there is another angle at the heart of this case that is quite important to us all: the nature of dollars deducted as charitable donations. Are charitable gifts government money or private money? The answer over the last several years coming out of DC has clearly been the former. In fact, you may have heard me mention that the the term ‘government subsidy’ is often used by our elected officials and their key staffers – both Republican and Democrat – when describing any funds that generate a charitable income tax deduction.
Whose Dollars Are Your Dollars?
The majority opinion makes the point that there is a distinction between a government appropriation and a personal expenditure that results in a tax benefit. The former is public money. That is to say, when the government collects tax revenue and then determines where those funds are to be spent, that is money over which the government does and should have control.
On the other hand, when a taxpayer makes a charitable gift and receives a deduction for doing so, the reality of the deduction does not change the nature of the funds. The funds retain their status as private, non-governmental dollars. The individuals who have earned and given those funds retains the private right to determine the use of those funds. Simply, a deduction or credit does not cause such funds to become the property of the federal government.
At first blush, one might think, ‘Of course, those are private funds.’ Don’t think so too quickly…and read Justice Kagan’s dissenting opinion. Though I disagree with it, it is well reasoned. We are to be thankful that Justice Kennedy sided with the conservatives on the court and a 5-4 decision was rendered. He essentially said that there was no standing for bringing the suit because the taxpayer (Winn) was not harmed because the funds were not governments funds.
Kennedy wrote: “A dissenter whose tax dollars are ‘extracted and spent’ knows that he has in some small measure been made to contribute to an establishment [of religion] in violation of conscience…” On the other hand, with a tax credit the funds were never collected in the first place. “When the government declines to impose a tax,” Kennedy wrote, “there is no such connection between dissenting taxpayer and alleged establishment.”
Inside The Progressive Mind
Kagan countered by calling the distinction between tax appropriations and credits “arbitrary.” She wrote, “Either way, the government has financed the religious activity. And so either way, taxpayers should be able to challenge the subsidy.”
Here is an excerpt from the NYT regarding Kagan’s dissent:
In her dissent in the case, Arizona Christian School Tuition Organization v. Winn, No. 09-987, Justice Kagan said the majority’s position was an elevation of form over substance. “Taxpayers experience the same injury for standing purposes,” she wrote, “whether government subsidization of religion takes the form of a cash grant or a tax measure.”
She offered examples. “Suppose a state desires to reward Jews — by, say, $500 per year — for their religious devotion,” she wrote. Would it matter to taxpayers offended by the practice whether the reward came in the form of a government stipend or a tax credit?
“Or assume,” she wrote, “a state wishes to subsidize the ownership of crucifixes” in one of three ways. It could purchase them in bulk and distribute them; it could reimburse buyers with a check; or it could pay with a tax credit.
“Now, really — do taxpayers have less reason to complain if the state selects the last of these three options?” Justice Kagan asked. Justice Kagan said the majority’s opinion was particularly surprising because the court had never thought the point even worth arguing over. “To the contrary: We have faced the identical situation five times — including in a prior incarnation of this very case! — and we have five times resolved the suit without questioning the plaintiffs’ standing,” she wrote.
Note where she uses the phrase: ‘government subsidization of religion’. When this belief becomes widespread, the charitable income tax deduction (or in this case a tax credit) for contributions to any religious organizations will eventually end.
A WSJ op-ed with a different slant began, “The Supreme Court’s big school choice decision yesterday is notable mainly for its insight into the progressive mind. To wit, no fewer than four Justices seem to believe that all wealth belongs to the government, and then government allows citizens to keep some of it by declining to tax it.”
Hanging in the Balance
This decision is a good news case for charitable giving, but let us not be lulled into thinking we have won the war. We have only won a battle and are only one vote away from sweeping changes regarding the taxpayer and religious activity of many kinds.
One thing that is needed now are well reasoned law review articles that substantiate the ruling of the majority in this case and help under gird this ruling for future courts. A great deal is hanging in the balance.
David Wills serves as president of the National Christian Foundation in Atlanta, Georgia. He lectures throughout the country on issues involving foundations and nonprofit organizations, the transition of wealth, responsibility from one generation to the next, as well as tax and spiritual issues in charitable giving. Learn more about the National Christian Foundation and our other affiliates at www.servantchristian.com.