Saturday, April 16, 2011

"Supreme" support for Education Tax Credits

The Supreme Court recently issued a ruling upholding education tax credits. In an April 4, 2011, decision on Arizona Christian School Tuition Organization v. Winn, the court rejected a challenge to an Arizona school choice program.

The Objective Standard blog had this to say on the matter:

Observe that the Court’s ruling in this case “declared that the plaintiffs in the case lack standing to bring the challenge in the first instance because the program is funded by private contributions, not government funds.” As Justice Kennedy put it: “Contributions result from the decisions of private taxpayers regarding their own funds,” thus “Objecting taxpayers know that their fellow citizens, not the state, decide to contribute and in fact make the contribution.” A tax credit, Kennedy elaborated, “is not tantamount to a religious tax or tithe.” To say otherwise “assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands.” This is a feature of tax credit programs—not of school voucher programs—a distinction that all advocates of school choice would do well to recognize and respect.

This is the core issue that I wrote about in my TOS piece, Toward a Free Market in Education:
School Vouchers or Tax Credits?

Whereas under a voucher program, tuition money goes from taxpayers to the government for disbursal to government-approved schools, under a properly structured tax credit program, the tuition money never goes to the government. Rather, that money is retained by taxpayers who opt into the program for use on education in the private market.

Though the narrowness of the ruling (5-4) is a little disconcerting, Kennedy's point is crystal clear and very powerful. The distinction between government and private ownership is a crucial one, because if the state has an automatic first claim on the peoples' earnings, then every choice we make on how to spend our money is by permission of the government rather than by right.

The Las Vegas Review-Journal had this to say about the court minority's position:

Justice Elena Kagan wrote the dissent, accusing the majority of creating a "novel distinction" between a tax credit and a government appropriation. "Either way, the government has financed the religious activity," she wrote. "And so either way, taxpayers should be able to challenge the subsidy."

But it's Justice Kagan and the statist minority who offer the novel -- and dangerous -- approach.

Tax write-offs are very different than subsidies. If a tax deduction were a "subsidy," then virtually every government entity in America already stands in violation of any ban on "subsidizing" churches and other charities by the simple fact that most such enterprises are in many ways "tax free."

Many Americans write off their home mortgage interest. Is this a "direct subsidy" to those homeowners, meaning the government has a financial interest in their house and therefore has a right to inspect the premises without a warrant?

As the Wall Street Journal put it, "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".

But ownership and the associated rights to use and disposal is not transferred from private individual to government by the simple enactment of a tax. This is true both factually and logically, as the majority opinion attests. The money must actually change hands. Owing a tax and paying a tax are not the same thing, and if legislators establish a tax credit and you take advantage of the opportunity, you are spending your own, not the government's, money. (Of course, the government has no right or legitimate authority to levy education taxes to begin with, according to our American concept of individual rights. And this case highlights the overarching danger of government financing of activities other than that related to its proper function of protecting individual rights. Direct government financing essentially means using private money as a means of control over those who earned it.)

The narrow split among the High Court's justices demonstrates how close we are to another major expansion of government power. But for now, the road is cleared, at least legally, for the enactment of more education tax credits.

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