Semantics war on Student Scholarship Organizations: Is it a tax credit, expenditure or subsidy?

Georgia's Student Scholarship Organizations (SSOs) seems to be a mystery to some on how the education tax credit works.  It seems to be nothing more than semantics, if it is a tax credit, an expenditure or a subsidy.

The 2011 Supreme Court case of Arizona Christian School Tuition Organization V. Kathleen M. Winn; justified nonprofits to redirect taxes from the State back to donors; not violated the Establishment Clause of the First Amendment.

Justice Kennedy said, when the government collects and spends taxes, the “governmental choices are responsible of the transfer of wealth,” so a subsidy for religion is “traceable to the government's expenditures.”

Justice Kennedy believe STOs are not traceable:

“Like contributions that lead to charitable tax deductions, contributions yielding STO (school-tuition organization) tax credits are not owed to the state and, in fact, pass directly from taxpayers to private organizations...Respondents' contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector's hands.  That premise finds no basis in standing jurisprudence.  Private bank accounts cannot be equated with the Arizona State Treasury.”

In short, taxpayers do not have the standing to challenge or sue most tax subsidies.

Justice Kagan believes there are methods to financing religion, like the mechanism used in “an appropriation, but not when the mechanism is a targeted tax break” or “tax expenditure.”

Dr. Kevin Welner, a professor at University of Colorado tells Patch how this targeted tax mechanism works:

“With neovoucher policies, the government creates the voucher through a more involved tax credit mechanism.  Instead of paying tax money owed to the government, the taxpayer gives the money to a new entity, often called something like a 'School Tuition Organization' (STO) or 'Student Scholarship Organization' (SSO) and often created by the private schools themselves.  The SSO then bundles the money and gives a neovoucher to parents to take to a participating school.”

This neovoucher mechanism has to be reported, so government does support religious organizations indirectly by nonprofits.

Justice Kagan believes Congressional budget committees must report to Congress their “level of tax expenditures in the federal budget.”  Many States like Arizona has to “compute the impact of targeted tax breaks on the public treasury, in recognition that these measures are just spending under a different name.”

The Arizona Department of Revenue issues an annual report, like Georgia Department of Revenue (GADOR) 2011 Qualified Education Expense Credit.

Justice Kagan believes “detailing the approximate costs in lost revenue for all state tax expenditures” is needed.  To explain “the fiscal impact of implementing” like targeted tax breaks, includes the STO (SSO) tax credit to show that it is “similar to a direct expenditure of state funds.”

The Arizona and Georgia mechanism is a dollar-for-dollar tax credit or “direct expenditure” to help pay for private school tuition.  On April 15th each year, ever Arizonan and Georgian either pays their full amount they owe to the State Treasury in their tax liability or they subtract what they own from their tax bill.

If a “dollar is a dollar—both for the person who receives it and the government that pays it, whether the dollar comes with a tax credit label or a direct expenditure label,” Justice Kagan said.  Then the debate if SSOs are a tax credit or a direct expenditure, is a semantics war of tomato potato.

Justice Kagan said the Court “declined to distinguish between appropriations and tax expenditures...the distinction is one in search of a difference.”

To show examples of semantics, where SSOs are something other than a tax credit.  Justice Kagan gives one example, if the Federal Government pays billions “to insolvent banks in the midst of a financial crisis,” even when millions of taxpayers oppose the bailout; because it is using “their hard-earned money to reward irresponsible business behavior.”

During this hostility, some lawmakers propose not to vote on this bailout to banks called an “appropriations;” instead lawmakers allow banks to subtract the exact same amount they owe the U. S. Treasury.  What “would most taxpayers respond by saying that a subsidy is a subsidy (or a bailout is a bailout), whether accomplished by the one means or by the other?”

Calling it a tax credit, a direct expenditure or a subsidy, is all the same thing.

Richard A. Epstein gives another example of semantics if:

“shareholders of a corporation or members of a fraternal organization may complain that key officers have sold valuable collective assets for a song to their family and friends.  None of these individuals suffer a distinctive injury, yet any member of the group is allowed to sue the wrongdoers for the entire class.  If the suit is successful, the court unravels the uneven transaction for the benefit of all.  Thereafter, the individual party who propelled the litigation receives compensation for his efforts from the money that is returned to the collective treasury.”

Justice Kennedy defends the tax credit as voluntarily, where “Respondents and other Arizona taxpayers remain free to pay their own tax bills without contributing to an STO.”  If “free,” there is $50M less in tax revenue collected for that year in the State Treasury that affects other taxpayers.

Justice Kagan believes “When the Government grants exemptions or allows deductions” for some taxpayers then “all taxpayers are affected; (by) the very fact of the exemption or deduction.”

The Court says the STO payment is “costless” to the individual, but they are “legally obligated to pay the State – hence, out of public resources,” Justice Kagan states.

The Court asserts that only when a government “extracts and spends” tax dollars to help religion, then a taxpayer is harmed.  Justice Kagan believes “a taxpayer suffers legally cognizable harm if but only if her particular tax dollars wind up in a religious organization’s coffers.”

Paul Bender a law professor at Arizona State University that represented the taxpayers in the Arizona case tells NPR, “The state has a budget deficit of a billion dollars.  So when $100 million doesn't come into the treasury, the rest of the state's taxpayers have to make up for that $100 million.  The idea that that doesn't affect the rest of the state's taxpayers is just fantasy.”

Tim Keller of the Institute for Justice tells NPR this, “only looks at one side of the ledger.  It is much more cost-effective to educate children in private schools.”

How can expensive private schools be “cost-effective” to educate children, if families cannot afford to attend them in the first place?  Everybody would go to private schools, if they were cheaper and more incentives were created by the government, like a tax credit.

This extraction has to go directly to religious organizations for taxpayers to sue the government for being involved in religion, yet redirecting donor's taxes as a tax credit, is not the same thing.

Justice Kagan states the taxpayer cannot show this harm. so the Court concludes that “if the government subsidies religion through tax credits, deductions or exemptions (rather than through appropriations).”  This is a semantics war on the words “extract” or “credit.”

This new form of extraction applies to James Madison argument, in the Memorial and Remonstrance Against Religious Assessments.

The Court's establishment of religion, is a play on words that believes James Madison wanted to limit religious support, even on “Tax expenditures” or “monetary subsidies the government bestows on particular individuals or organizations by granting them preferential tax treatment.”

The U. S. C. §622(3) defines tax expenditures as “those revenue losses attributable to provisions of the . . . tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”

Then by definition, a tax credit is a tax expenditure.

Taxpayers as Justice Kagan believes “pick up the cost of the subsidy in either form,” yet is not “extracted from a citizen and handed to a religious institution in violation of the citizen’s conscience.”

Justice Kagan believes:

“Arizona’s tuition tax-credit program in fact necessitates the direct expenditure of funds from the state treasury.  After all, the establishing the initiative requirement the Arizona Department of Revenue to certify STOs, maintain an STO registry, make the registry available to the public on request and post it on a website, collect annual reports filed by STOs, and send written notice to STOs that have failed to comply with statutory requirements.”

The GADOE maintains a registry of SSOs and removes them if they fail to comply.

Georgia's SSO tax credit is a “direct expenditure” from the State Treasury.  We all pay Georgia Withholdings out of each of our pay cheques, which goes through the GADOR, ending up in the Georgia Treasury and is extracted back to the donor.

Creating nonprofits that does not allow for transparency by IRS laws, allows redirecting extraction to religious institution.  The program exists and created by the government, as a tax credit.  The government supports the program for religious private schools, no matter how you sell the package that it is only a “tax credit,” a expenditure or a subsidy.

Justice Kagan believes the government can use “tax expenditures to subsidize favored persons and activities...(so the semantics war of using) Appropriations and tax subsidies are readily interchangeable; what is a cash grant today can be a tax break tomorrow.”

Justice Kagan found “Cash grants and targeted tax breaks are means of accomplishing the same government objective - to provide financial support to select individuals or organizations...Taxpayers who oppose state aid of religion have equal reason to protest whether that aid flows from the one form of subsidy or the other.”

Douglas Laycock a law professor at University of Michigan tells NPR:

“Doing it through tax credits might be more politically attractive than doing it through vouchers because it's mostly Republicans who support these aid to religion programs.  And Republicans don't want to raise taxes to pay for vouchers.  But if they can do it through a tax credit, they can support religious schools and claim as a tax cut all at the same time.”

Most states do not support vouchers, because they cost the State more money overtime from the lack of tax revenues.

Andrew J. Coulson at the Cato Institute's Center for Education Freedom tells Huffington, “There are other ways of funding universal choice in education, but only tax credits (either for parent's own education expenses or for donations to STOs) respect the freedom of conscience of taxpayers as well as the freedom of choice of parents.”

For taxpayer's “freedom of conscience” to have many choices is noble, but we just have three bureaucratic “choices” of public, charter and private schools.  If you break it down further, there are eight “choices.”

Five public school “choices” like:  Traditional Public schools; Magnet schools since the 1970s; Charter schools since 1992; Virtual Cyber Charter schools online; and Homeschooling since the 1990s.

Three private school “choices” like:  nonprofit Independent Private schools that can be religious or a boarding school; Parochial religious schools; and for-profit Proprietary Private schools under the National Independent Private Schools Association.

The cost of education may decrease, if there were more than three bureaucracy choices of public, charter and private education.

Should all public schools be replaced by charter and private schools?  If so, then parents will not have three “choices,” but two or seven.

Justice Stevens in the Zelman v. Simmons-Harris case on Ohio vouchers said “the voluntary character of the private choice to prefer a parochial education over an education in the public school system seems to me quite irrelevant to the question whether the government's choice to pay for religious indoctrination is constitutionally permissible.”

Rep. Ehrhart a sponsor of Georgia's SSOs tells Patch “It truly is thousand of kids who are no longer in failing schools or systems who are benefiting from the law in Georgia.  These are the children that the opponents of this program hate so badly that they would destroy it rather than have their precious status quo made to look bad.”

Doubts on how SSOs work is about questioning the intent of lawmakers.  Where are the statistics to prove public school students now in private schools, are succeeding?

“Failing schools” only seems to apply as code word for “public schools.”  Private schools are “independent” of state and federal laws, so they do not have to show “failing” statistics to the public for accountability.

Dr. Welner tells Patch when it comes to failing schools the “opportunities to learn” can be:

“enhanced by addressing everything from segregation (in housing as well as between schools and within schools), to school funding inequities, to between-school differences in teacher experience and training and in other resources such as technology, safe buildings, textbooks, working bathrooms and class size, to discipline practices that push kids out of school, to the availability of rich, engaging learning opportunities in neighborhoods and communities.”

If public schools are “failing,” then what specific factors are contributing to failing?  All schools do not have the same problems.

If schools are “failing,” it is a team effort by collectively calculating all grades A-F of all students, not just judging a few failing individuals.  If a school is “failing,” it is not just because of teachers effectiveness.

Some factors of failing where 1M students do not graduate should be looked separately from the dropout rate like:  urban system vs rural, student population, immigrants, turnover of teachers and students, high poverty, no family or neighborhood support that affluent suburbs have, to focus on middle school and 9th grade.  Since the stable middle class life of jobs are gone that require higher education, training and technical skills.Lack of funding-resources, overcrowding, and incentives to push out low-performing students by “test-based accountability” just to improve overall test scores.  These reforms did not make education better and contributed as incentive to “failing.”

Discipline “practices that push kids out of school” as Dr. Welner said, is what Gwinnett STOPP and ACLU calls school-to-prison pipelines.

Public criticism and liabilities over school shootings; creates zero-tolerance polices to punish and expel students for the most minor offenses.

Many “under-resourced schools” rely on police, rather than administrators and teachers to maintain discipline.  This leads to “schoolbased arrests” mostly for non-violent offenses, such as disruptive behavior that criminalizes school children, creating a criminal record before they graduate.

This semantics wars may end on which education is better or if they served “all” our children, but they do not.  Money dictates choices in education.  If “all” parents could afford it, we would “all” go to better schools, but we “all” cannot afford them.

Having more choices in education would be more like Boy-Girl Scout model schools, with college-like classes with levels of achievements.  Where there are core courses, then electives all picked by the students.  This is true local control or local choice, if students pick their own classes.  To team up with other students to learn a skill and achieve a goal together not on their own, much like the Scouts.

If education was like buying a vehicle or soda, then there would be 10-30 choices based on different looks, performance and tastes, but education is about forming a child's mind.  Education is an art form, it is unique.

Education is a team effort by all parties:  the government, companies, nonprofits, administrators, teachers, parents, and students.  If there is less funding, less support or less effort from any of these factors, then the work of art to form a student's mind will not benefit.

We need to stop the semantics war and fund “all” education, no matter public or private.