Apr 21, 2011
The Supreme Court on the Public Money Argument
Consider This… Highest Court finds that private dollars do not belong to government regardless of charitable deduction
Here’s something we’ve just started to digest – the April 4th decision by the U.S. Supreme Court in the Arizona Christian School Tuition Organization v. Winn case.
In a 5-4 decision, the Supreme Court ruled that Arizona taxpayers don’t have the right to challenge an Arizona state law which allows state income tax credits for charitable contributions that go to religious schools. What does this mean in practical terms and why should the philanthropic community care?
It appears that the Court has waded into the debate over whether or not private donations to a charity morph into “public monies” simply because the donor takes a tax deduction or credit for doing so. The public money argument has been used to justify any number of government restrictions and directives over foundations and charities.
In the Arizona case, the Court made several observations that we believe are important to the foundation community going forward. The majority distinguished between private decisions by an individual to donate his/her money from public decision-making made by government in appropriating money and providing direct subsidies and grants. In writing for the majority, Justice Anthony Kennedy observed that these private, charitable funds don’t flow through the government the way appropriations, direct subsidies, and grants do. Indeed, private funds that go directly to a charity remain private funds, notwithstanding the donor taking a tax deduction or a credit.
To be sure, four Justices took a different view in the case. Writing for the minority, Justice Elena Kagan argued quite forcefully that “making a distinction between appropriations and tax expenditures has as little basis in principle as it has in our precedent. Cash grants and targeted tax breaks are means of accomplishing the same government objective – to provide financial support to select individuals or organizations.” She was joined in her dissent by Justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor.
Focusing on the private decision-making process involved in charitable giving as well as the fact that the government is not involved in the flow of funds from charitable institutions, undercuts the argument that private assets donated to a charity are “public monies” - just because the donor takes a deduction. As a result, the argument that the government should reach further into the operations and organizations of private foundations and charities is undercut as well. And from our perspective, that is all to the good.
Additional resource: For more on the public money argument read the monograph entitled “How Public is Private Philanthropy: Separating Reality from Myth” by legal scholars John Tyler of the Ewing Marion Kauffman Foundation and Evelyn Brody of the Chicago-Kent College of Law.