ABSTRACT

Targeted tax breaks of various forms, afforded by Congress or a state legislature pursuant to its taxing and spending powers,2 are by their very nature government subsidies. Since the 1970s, the Supreme Court repeatedly has recognized this fact. In Walz v. Tax Commission of the City of New York, all Justices essentially concurred that tax “exemptions do not differ from subsidies as an economic matter;”3 even the lone dissenter, Justice William O. Douglas, bluntly commented: “A tax exemption is a subsidy.”4 Almost 20 years later in Texas Monthly, Inc. v. Bullock, Justice William J. Brennan, writing for the majority, noted: “Every tax exemption constitutes a subsidy that affects nonqualifying taxpayers, forcing them to become ‘indirect and vicarious donors.’”5 Justice Antonin Scalia, joined by Chief Justice William H. Rehnquist and Justice Anthony Kennedy, agreed in dissent that in some contexts “tax exemptions and subsidies are equivalent.”6 In Regan v. Taxation with Representation of Washington, a unanimous court stated more broadly:

Both tax exemptions and tax-deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect

1 Ariz. Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436, 1450 (2011) (Kagan, J., dissenting).