Commentary

From the time Elena Kagan emerged as a likely nominee to the Supreme Court, the focus was on whether she would, sooner or later, have a strong influence among the Justices because of her acknowledged quickness of mind and good humor.  And, because Justice Anthony M. Kennedy holds such a crucial vote on the Court, much speculation turned on how — or if — Kagan might mesh with Kennedy.  The beginnings of an answer came on Wednesday, as the two of them took crucial, reinforcing roles in a hearing on an important case that is about government aid to religion, but morphed into a case about how the tax system works.

In an often passionate hour spent heavily on the difference between a tax credit and a tax deduction, intertwined with a focus on the arcane subject of “taxpayer standing” to file a lawsuit, the Justices returned to the constitutional fray over tuition help for parents who opt to send their children to parochial schools.  Along the way, the argument brought out an aggressive pledge by the government’s top lawyer in the Court to wage war hereafter on taxpayers’ right to sue to question how the government spends tax revenues.  It was, in short, 60 minutes of high judicial drama.

The combined cases of Arizona Christian School Tuition Organization v. Winn, et al. (09-987) and Garriott v. Winn, et al. (09-991) are as much about who has a right to be in court to challenge the use of tax relief as a way of raising money for poor children to go to private schools as it is about the constitutionality of such a program.  But, on Wednesday, those two issues became thoroughly mingled, so that the Court’s answer to one might well answer both.  The mingling seemed to benefit the challengers to a tuition aid program that Arizona has had for 13 years — and that was exactly as the challengers’ lawyers had hoped.

The federal government, of course, has no tuition aid program closely similar to Arizona’s, but it has turned out to be a central player in the Arizona case, and, in fact, rather oddly had the lead position in the argument defending Arizona’s program against a constitutional challenge.  But Acting U.S. Solicitor General Neal K. Katyal, in that role, came mainly to try to persuade the Court that it should not expand by one whit the limited opportunity that taxpayers now have to sue to contest spending by government at any level.

That “standing” issue got closely linked to tax policy questions as the argument moved along.  If the Justices are persuaded — as Katyal insisted — that the tax credit that Arizona gives to people who donate money to tuition organizations that fund scholarships for poor students involves only private money flowing through private channels to private schools, no taxpayer would have standing to challenge it, and there would be no constitutional problem based on government involvement.  But if the Justices, on the contrary, conclude — as the program’s challengers insisted — that a tax credit merely allows a taxpayer to switch from paying part of his tax bill to the government to paying that amount to a state-approved tuition group, then taxpayers have enough at stake that they can sue, and discrimination by the group in the middle in awarding scholarships is a constitutional problem.

Katyal argued that “not one cent, not one fraction of a cent” of the challenging taxpayers’ money flows to a religious school under the Arizona program, so no taxpayer has suffered any harm sufficient to allow them to sue; these taxpayers, he said, are only objecting to how someone else spends their money by donating to a tuition group.

But it was the fervency of that argument that quickly drew the attention of Justice Kagan.  Early in Katyal’s verbal assault on the concept of “taxpayer standing,” Kagan spoke up.  Reeling off a series of past Supreme Court rulings that had dealt with government-religion dealings, Kagan noted that no one on the Court had recognized that taxpayers had brought those cases, so she wondered if the Court had no authority to decide any of them.  Developing his answer, Katyal concluded it by saying flatly: “My answer is yes.”

Kennedy, seemingly stunned, immediately sat forward, to make sure that Katyal had said ‘yes.”  First he asked whether Katyal was saying that those cases were all wrongly decided, and then he put a more focused question: was there no one with standing in those cases?  The government’s lawyer said no taxpayer had standing.

Justice Ruth Bader Ginsburg immediately brought up another prior case, the one in which the Court previously had examined another legal issue involving the Arizona program, and she noted that the government did not contest standing there.  Katyal at first replied that it had mentioned the issue in a footnote, but then announced that, “should another case arise” — as he certainly knew it would — “the United States will acknowledge the standing defects” in its brief and argument.

When Arizona’s lawyer, chief civil appeals counsel Paula S. Bickett, took the podium, Kennedy and Kagan again were prominently engaged in the questioning, showing increased skepticism about the Arizona program.   A key question in that program is the nature of the role played by the private organizations that are set up to channel privately donated money (for which taxpayers get a credit against their state tax bill) into scholarships to attend private, religious schools.

Kennedy wondered if those tuition organizations could discriminate on the basis of race in awarding scholarships.  Bickett said they were private in nature, so there would be no constitutional violation.  But Kennedy persisted, pressing the state’s lawyer on whether those organizations actually are exercising power as arms of the state, noting that they are subject to a wide array of regulation by the state.  When Justice Antonin Scalia momentarily moved to divert Bickett, Kennedy abruptly demanded that she answer his question, but in doing so implied that he was strongly tempted to think that they were enough involved to be agents of the state (if they are, of course, they could not hand out scholarships restricted solely to religious schools — as some do — or only to students of one faith).

Kagan shortly picked up on that line of questioning, suggesting that if a state could not constitutionally give a tuition voucher only to a student going to a Catholic school, “why is the state allowed to use intermediaries to do” the same?  Bickett insisted that the state was not making the decision on awarding scholarships; the tuition groups were.  But Kagan persisted, noting that Arizona had set up its program solely for the purpose of letting the organizations “make distinctions that the state itself cannot make.”

As Bickett was finishing her argument, she set the stage for the Justices on the Court who seem sympathetic to Arizona’s tuition tax credit, who would work diligently to try to undercut the challengers’ key tax code argument.  “There is not a significant difference,” the state’s lawyer asserted, “between a tax credit and a tax deduction in terms of constitutionality.”  The challengers, she said, were arguing that “any money that the government doesn’t take in would then be the equivalent of state money.’   If that were true, Bickett went on, it would undermine all kinds of charitable deductions that are allowed under federal tax law.

Rising, Paul Bender, a Phoenix law professor representing the four taxpayer challengers, immediately sought to clarify his most basic point about how tax credits work, in contrast to tax deductions.  The difference he outlined is critical to his argument, and he had already made clear in his brief on the merits. It is state money that is going from taxpayers through tuition organizations that then discriminate, in passing out those funds, on the basis of religion, he said.

It took a few minutes for the members of the Court who would be Bender’s strongest adversaries — Chief Justice John G. Roberts, Jr., and Justices Antonin Scalia and Samuel A. Alito, Jr. — took on his claim that the money involved was government money, but then they would contest it rigorously, basically arguing that a tax credit is no different than a tax deduction and tax deductions for religious purposes are now clearly valid.

Justice Scalia began, commenting that it was “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….This money has never been in the government’s coffers.  The government has declined to take the money.”  Bender resisted, arguing that money that flows through a credit against tax is, simply, money that is raised by the state’s income tax law, and the taxpayer either pays the government as tax, or pays it — in this instance — to a tuition organization.

Justice Kennedy promptly noted that he, too, had problems with that argument.  He said he had “some difficulty that any money that the government doesn’t take from me is still the government’s money,” and he likened it to a discount that the elderly get at a restaurant — it is, he said, money they don’t have to pay, so the cashier does not consider it the restaurant’s money.  “That’s the whole point of your case,” Kennedy commented.

But Bender indicated that Kennedy was not understanding the argument; it soon became apparent that other Justices also did not follow it, at least without further exploration. The lawyer said that the money that is involved in the Arizona program is money raised by a tax; without a tax, there would be no tax credit.

Justice Alito then wondered if he would say the same about a tax deduction; the question, and similar questions by other Justices, would give Bender a chance to explain further.  He said there is a difference between a deduction and a credit. Under a tax deduction scheme, he said, that is money that a taxpayer never owes or pays to the government; the choice of where those particular dollars go is made by the taxpayer, not the government.  After the money is gone, the government allows a deduction on it.

By contrast, the lawyer said, a taxpayer who owes the government a tax obligation cannot keep that money or give it away to anyone or spend it on anything else but the tax bill.  Under the Arizona program, he continued, a taxpayer fills out a tax return, knows what money he owes the government, then transfers some of those dollars, through the credit, to a tuition organization that decides who gets a scholarship funded by the credit.  That, he insisted, is what makes it a “government spending” program.

As Justice Scalia, making the argument that the state does, contended that the intervening private choice of a parent or other contributor means that it is not the government that makes the decision on where the money goes.  Bender countered that it is not the parent who is channeling the money, it is the government that does so by letting money owed it in taxes be paid to a tuition organization that decides where to pass it on.

Justice Kagan helped Bender along, switching the questioning away from the money flow inquiry to the actual purpose of the program. She did so by getting him to focus on who benefits from the program — the parents and their children, he responded — in order to focus the case on where the claimed discrimination has its impact.  “If the beneficiaries of the program are the parents,” Kagan said, “then it’s the parents who have to be treated equally without regard to religion.”  Exactly his point, Bender said, gratefully.

Justice Ginsburg then offered some help on the tax consequences distinction Bender was trying to make.  She spelled out with clarity his point that the taxpayer inclined to make a contribution to a tuition organization is not free at tax time, under the Arizona program, to make a very wide choice on what to do with the money owed in taxes.  It either is paid to the government or to the tuition group, Ginsburg noted.  Exactly, Bender nodded.

Bender, it was clear, was not getting through to Justices Alito or Scalia, but he was to other Justices — perhaps even to the Chief Justice, after Bender had said that his clients would have no constitutional objection at all if what Arizona had done was to allow donors to tuition organizations to take a tax deduction instead of a tax credit.  The Chief Justice said he wanted to be sure “we have the answer” to that purported distinction.

The key question, in the end, was whether he had gotten through to Justice Kennedy on that point, because the outcome may depend on just that.

Posted in AZ Christian Sch. Tuition Org. v. Winn, Analysis, Featured, Merits Cases

Recommended Citation: Lyle Denniston, Argument recap: A Kennedy-Kagan axis?, SCOTUSblog (Nov. 3, 2010, 11:59 AM), http://www.scotusblog.com/2010/11/argument-recap-a-kennedy-kagan-axis/