Tax credits are not Government Spending?
The Tax Policy Center The Supreme Court Says Tax Expenditures aren’t Goverbment Spending points us to a notable decision by the Supreme Court that has been lost in the federal budget fracas.
Ever since Stanley Surrey popularized the concept of tax expenditures nearly half a century back, economists have argued that many tax breaks are equivalent to government spending. Virtually any spending program can be transformed into a tax expenditure that directs money in the same way.
This week the Supreme Court rejected that equivalence, ruling that an Arizona tax credit differed enough from a comparable direct spending program to deny taxpayers the right to sue on the basis that the credit represented an unconstitutional government activity. The Court’s decision suggests that while the majority in this decision may be great lawyers, they are lousy economists.
Some background: In 1968, the Court ruled that citizens may sue to stop the government from spending that violates the Constitution, in the specific case supporting religious activity (Flast v. Cohen). Citizens had standing to sue, the Court concluded, because the challenged spending directly affected taxpayers who fund government programs.
The current case, Arizona Christian School Tuition Organization v. Winn et al., involves not direct government spending on an unconstitutional activity but rather a tax credit that serves the same purpose as a spending program. Arizona allows taxpayers to claim a non-refundable credit of $500 a year ($1,000 for couples) for donations to qualified school tuition organizations (STOs), which then use the funds to support tuition payments to private schools. The original suit claimed that STOs violated the First Amendment’s prohibition of government activities promoting the “establishment of religion” because tuition payments could go to parochial schools.
In a 5-4 decision, the Court ruled that the challenged tax credit was not government spending and therefore the claimants lacked the standing to sue allowed in Flast. Unlike spending, the majority argued, tax expenditures do not necessarily affect the tax bills of others; that is, the government won’t necessarily raise taxes to cover the revenue cost of a tax credit. In fact, the opinion claimed, “the purpose of many governmental … tax benefits is ‘to spur economic activity, which in turn increases government revenues.’” And further, private school tuition assistance might induce some students to switch from public to private schools, thus reducing government costs. Since tax expenditures thus don’t necessarily harm taxpayers, they have no right to sue.
So the notion is that any tax expenditure will pay for itself in increased tax collections on expanded economic activity? What is this? A Laffer curve on steroids?
I can’t make nor head nor tail outta this durn animule. So, which is it? A saving, an expenditure, or whatever the Court wants it to be depending on who the litigants are? NancyO
I have never bought the notion that not taking a dollar from me is an “expenditure.”
It takes a human to violate rights, find the human or drop the suit.
OR.. it’s as though ALL of our income is due the government; what we end up hanging on to, is an expense for the government.
“tax expenditures do not necessarily affect the tax bills of others;”
Well this is just insane. If taxes exist at all then the expenditure granted to one favored group necessarily increases the tax burden on those not included in that favored group, there is no way around that.
It would appear to be an establishment of religion on the part of the Supreme Court. Not Christianity, but Free-Marketeer-ism, a religion which uses imaginary pseudo-economics to justify a belief in the transcendental nature of the unleashed entrepreneur, who in the absence of taxes becomes a Neitzschean Superman and creates infinite economic growth and prosperity.
The issue boils down to whether one believes that tax credits, in effect, serve the same purpose as a spending program in evaluating budget revenues, outlays, and determination of resulting surpluses or deficits.
My opinion is yes.
Temporary tax credits, in particular, provide some focus on this issue.
Tax credits are taxable revenue offsets buried in the Federal revenue streams.
MG…yes, and up to now was consensus over the last many decades.
No, actually, legislation can violate rights. That’s why laws can be challenged as unconstitutional. Happens all the time.
No, no, no! You don’t understand! Haven’t you heard about the Laffer Curve?
The problem with this Supreme Court opinion is that the AZ government actually IS taking a dollar from you—actually, $500 from each taxpayer—and placing it into the state’s general revenue fund unless the taxpayer opts instead to place all or part of the $500 into the coffer of a state-sanctioned Student Tuition Organization (STO). There are several of these STOs, but almost all of them are organizations of religious schools of a particular denomination (or groups of demoninations). The STO then forwards the money to the member school of your choice.
It’s a money-laundering gimmick. Kennedy, who wrote the opinion, is right that private money isn’t the government’s money and the decision NOT to require payment doesn’t convert private money into public money. But he’s wrong in saying that the money is private simply because it’s never actually transferred to the state. Here, the state does require payment; the state does not allow you to keep the money. You either pay it to the state or you pay it to an STO, but either way the state is taking money from you by requiring that you pay it to the state or to an STO.
In this case, then find the wording of the law and sue the legislature.
The people who sued wanted the law declared unconstitutional and the state and the STOs enjoined from using the statute. This wasn’t a lawsuit for monetary damages. They sued one of the state-approved Student Tuition Organizations—one that allows the tuition to be used only at one of its member religious schools—asking for those rulings. What difference does it make whether the appropriate defendant is the state, the state legislature, or one of the STOs? The purpose of the lawsuit, and the result, are the same regardless of who the proper defendant is.
Gee a casual observer might actually suspect that the Roberts/Alito/Thomas/Scalia/Kennedy majority were…. making law. Or at least radically changing it.
Mmmmmm that’s some Strict Constructionism!
We have a list.
No that is your invention…it is common knowledge what a tax expenditure is.
“religion which uses imaginary pseudo-economics to justify a belief”
That is the precise reason that the people who have done nothing but bitch about the tax cuts, and insist that raiseing taxes spurs economic growth did not do so when they had the super majority in the House, Senate, and the Executive Branch.
They knew they were right, but decided not to raise taxes because they wanted learn more about this facinating “religion which uses imaginary pseudo-economics.”
It all makes perfect sense now!
“actually IS taking a dollar from you”
No they are not…it is a tax credit based on a “donation.”
“there is no way around that.”
The Tax credit is a “Tax Expenditure,” but it is not a “Direct Expenditure.” It is called an “Tax Expenditure” for accounting purposes within the Budget Planning, but the government is not actually taking tax money from one group and giving it to another. It is merely a case when the government is taking in less money than they had planned in the budget, and “investing” it in an area where it beleives it will save or make that revenue up somehwere else.
So….”Well this is just insane”….is not exactly accurate is it?
What difference does it make where people’s “donations” go. The more “donations” that are encouraged whether they go to a religous school or not, free up more space in the public school system, and saves dollars.
Sounds like to me, that your real problem here is that some kids go to a religous school. I find it amusing when you defend people who claim “it’s unconstitutional,” when the constitution clearly states that it will protect people or “prohibit the free exercise thereof” one’s religion.
Yerom, I find it amusing you would make such a claim..can you read Beverly’s mind?
“We have a list.”
But are you checking it for ‘who is naughty and who is nice’?
God knows I have some entrants in the lump of coal lottery. Still there are eight shopping months to XMas, promotions to broken Candy Canes not being out of the question.
Oh! Were you talking about some other list?
I find it amusing that if the donation were designated to a public school, that you assume she would have the same problem with it…..Can you read Beverly’s Mind?