The Debate Over Tax Credits for Religious Education

January 21, 2006

One of the most frequent legal issues to face the tax community recently has been the question of whether tax credits that can be used by parents to send their children to private (specifically religious) schools violates the First Amendment or a given state’s constitution. This issue is back in the news courtesy of New York Governor George Pataki’s state tax reform plan. From New York Newsday:

A proposal by Gov. George Pataki to provide $500 tax credits to parents in underperforming school districts _ potentially for private school tuition _ was criticized Wednesday as a thinly disguised voucher program while state Attorney General Eliot Spitzer questioned whether it might face a constitutional battle.

“I think there will be serious constitutional issues if they are used for parochial schools,” said Spitzer, the only announced Democratic candidate for governor. “Whenever there is state funding _ tax dollars _ used for nonpublic schools in particular, there are First Amendment issues that are raised, not only federal constitutional issues, but state constitutional issues.” (Full Story)

This issue of having favorable tax treatment for religious organizations has been litigated and debated mostly at the state and local level, and somehow the federal tax code has been immune from much of the discussion. Therefore, a crucial point being ignored is that the federal tax code includes many similar provisions that offer deductions or credits that promote religious organizations, including education.

If a college student pays tuition to the University of Notre Dame or Southern Methodist University, he/she can claim a deduction or credit on his/her federal tax return (or the parents can). Also, the charitable deduction allows individuals to deduct from their federal tax liability their donations to religious charities, churches, and other non-profit religious organizations (like the YMCA).

And as Tax Foundation economist Andrew Chamberlain noted in a recent special report on federal tax policy and charities, these religious charities are also the recipients of millions of dollars in government grants, courtesy of both state and federal governments. For example, Catholic Charities in 2003 reported $1.7 billion in government grants.

In summary, while many are opposing these policy proposals in New York because they consider it to be an endorsement of religion, we need to recognize that favorable tax treatment of religious organizations (like education) already exists throughout governments across the country and is most profound at the federal level via the tax code.


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