If the government gives tax credits for donations that may go to religion, is that essentially the same as government spending on religion?

Lyle Denniston reports on the oral argument today in Arizona Christian School Tuition Organization v. Winn. This is a case about tax credits for contributions made to private tuition funds that make grants to students who go to private schools. Many of those schools are religious and some of the qualified funds only make grants to students who go to religious religious schools. Denniston begins his description with a claim that he detected Elena Kagan's purchase on the mind of Tony Kennedy (a subject we were just talking about the other day). Denniston says Kagan and Kennedy — the 2 Ks (sounds like trouble!) — "took crucial, reinforcing roles." I don't see much support for that point.

This case has a substantive Establishment Clause issue — whether government is subsidizing religion — and a threshold issue about standing — whether taxpayers can sue over this. These issues are linked because they both may depend on whether a tax credit turns the privately donated money into money from the state.

The lawyer defending the Arizona program said it was like tax deductions. People take tax deductions for their contributions to religious organizations all the time. What's different about tax credits? The lawyer arguing against the program "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."

If we view the tax credit as coming from the state's money, amassed by taxing, then the taxpayers who brought the suit probably have standing. But does that also answer the Establishment Clause question? Private citizens decide whether to contribute to a fund and pick from the qualified funds, not all of which exclusively fund religious schools, and the children getting the grants are choosing which school they want to go to. So there are 2 levels of private choice. And the definition of the funds is neutral and not religion-based.

Here's the complete transcript of today's argument.

UPDATE, April 4, 2011: The Supreme Court held that the plaintiffs lack standing.