One of the most innovative approaches to financing education, tax breaks for donations to scholarship-granting organizations, was given a green light by the U.S. Supreme Court–even if many of those tax breaks end up benefiting students who enroll in religious schools.

Several Arizona residents, backed by the American Civil Liberties Union (ACLU), objected to the tax credits. Under the credits, taxpayers can receive a dollar-for-dollar credit for donations to student tuitioning organizations (STOs), charities that grant scholarships for use at private K-12 schools. The plaintiffs objected that since the scholarships can often be used at religious schools, the tax-credit law creates an unconstitutional establishment of religion. The Supreme Court, in yet another split decision decided by Justice Kennedy, disagreed. (The dissent was lead by Justice Kagan, joined Ginsburg, Bryer, and Sotomayor.) You can read the opinion in ARIZONA CHRISTIAN SCHOOL TUITION ORGANIZATION v. WINN ET AL. in this PDF file. (Note that once again the Supreme Court overruled a decision of the Ninth Circuit Court of Appeals.)

In brief, the majority ruled that Winn et al. lacked standing to sue. Even more significantly from a policy standpoint, the opinion affirmed that “the tax credit, by facilitating the operation of both religious and secular private schools, could relieve the burden on public schools and provide cost savings to the State.” So not only is school choice a moral good, it can have financial benefits to the state as well. Andrew J. Coulson, in his quick analysis of the ruling, highlighted another benefit of educational tax credits. Quoting the court, he said, “awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own consciences.” He adds, “With this ruling, the way forward for the school choice movement is clearer than it has ever been.”

Minnesota has an education tax credit program, but it is substantially less valuable than the Arizona one. First of all, it is open to parents only, meaning that businesses and civic-minded individuals who don’t have school-aged children cannot benefit. In addition to extending tax credits to any interested individuals, Arizona gives the grants to businesses as well.

Next, tuition expenses are explicitly excluded from the Minnesota tax credit, though they can be used to calculate expenses eligible for a tax deduction–but even then, religious schools are exempt.

Minnesota’s tax credit (statute 290.0674) starts to phase out at incomes above $33,500, a very low bar. (A married couple in which each person earns $8.10 an hour has a gross income of $33,696.) People with incomes above that must settle for a deduction.

Finally, the Arizona program has a greater financial benefit. To quote Justice Kennedy, “Section 43–1089 [of Arizona law] allows Arizona tax­payers to obtain dollar-for-dollar tax credits of up to $500 per person and $1,000 per married couple for contribu­tions to STOs. According to the Foundation for Educational Choice, in 2007, the value of Minnesota’s tax credit was $267, while the average tax deduction was worth $1,169.

As the Alliance for School Choice notes, Arizona has more school-choice options than any other state. Perhaps it’s time we turn St. Paul into a cold Phoenix. See the Arizona Department of Education for more about the individual and corporate tax credits.