On Tuesday, the Supreme Court ruled that Arizona’s tax-credit school-voucher program — in which an individual who gives money to fund vouchers is fully reimbursed by the government in the form of a tax break — does not constitute government spending, and that therefore its constitutionality cannot be challenged by taxpayers.
As a matter of law, the decision is reasonable. The money in question never actually enters the government’s coffers, and a ruling that it is nonetheless government spending could set a precedent for all sorts of judicial overreach.
To those of us who think legislators shouldn’t circumvent the democratic process and duck court scrutiny, however, the decision is bad news. Tax-credit voucher programs are a shell game that allows people to funnel their tax dollars to a controversial cause, all while legislators claim that those dollars aren’t really tax dollars at all, but “donations.” Everyone, including supporters of normal school vouchers — in which the government funds the vouchers directly — should oppose these efforts to pull the wool over voters’ eyes.
Let’s be absolutely clear about what happens when someone makes a “donation” under a tax-credit regime: If the donation amount is $1,000, the donor knocks $1,000 off his tax bill. This isn’t a deduction; he doesn’t merely pay taxes on $1,000 less of his income. This isn’t a partial credit; his taxes are reduced by the full $1,000. This is a dollar-for-dollar reimbursement
by the government. There is absolutely no difference between this situation, and a situation in which the government simply gives $1,000 to fund vouchers directly. Either way, the government has lost $1,000 in tax revenue to a voucher program (with all the good and bad that entails), the voucher program has received $1,000 in funding, and the individual has not foregone a single dollar.
I’ve been making this point for several months at the NR blog Phi Beta Cons, provoking strenuous pushback from a few folks, including several members of the Cato Institute and my PBC colleague David French. Let’s look at their objections.
The first is that this way of thinking means that “all your money” belongs to the government, and therefore it’s shocking to see a National Review writer endorse it. Well, no: This way of thinking means that this particular money — the money “donated” — belongs to the government. And it does.
I can say this because the money doesn’t pass the Xbox Test: I can’t use it to purchase an Xbox. I also can’t use it to buy clothes, take my wife out to dinner, or fly to Wisconsin to visit my parents. All I can do with it is surrender it to the government as taxes, or spend it on something the government approves of — in this case, a voucher program. Even if I wanted to give it to a charity, I’d have to donate a lot more money along with it before I’d save $1,000 on taxes, because charitable donations are subsidized with deductions, not dollar-for-dollar credits (more about that in a second). Anyone who thinks that’s the same as a “tax cut” needs to get his head examined.