The Supreme Court held oral argument today in Arizona Christian School Tuition Organization v. Winn, a case challenging Arizona's law which allows an individual taxpayer a dollar-for-dollar tax credit for donating to a state-approved K-12 private school "scholarship" organization. Based on this recap of the argument, this law could be struck down based on the subtle distinction between a tax credit and a tax deduction. For those of you unfamiliar with the distinction, the latter reduces the amount of your income used to compute your tax bill, while the former actually reduces your ultimate tax bill itself after it has already been computed. If you have a choice between the two and all other factors are equal, take the credit over the deduction every day and twice on Sunday! The gist of the plaintiffs' argument is that the Arizona credit amounts to the forgiveness of a debt to the state, and this is the equivalent of an expenditure made by the state (which is true in all other contexts that involve balance sheets).
Justices Kagan and Kennedy appeared to be following the same intuitions about the case, as both were very concerned that, by forgiving, dollar-for-dollar, the tax obligations of donees to scholarship organizations that discriminate based on religion, the state could do through intermediaries what it could not do legally itself (i.e., fund religious discrimination). The Chief Justice even seemed a bit sympathetic to that line of thinking. This may end up a 6-3 decision striking the law down.
On the other hand, there is also an issue of "taxpayer standing" in the case, so the Court may punt, as it did in the Pledge of Allegiance case a few years back. Watch this one closely.
UPDATE: I forgot my manners: Hat tip to my good friend Cory Andrews for information on the case.