Justice Kennedy asks whether there would be a constitutional violation if an STO discriminated on the basis of race. He is worried when she says that there is no connection whatsoever between the state of Arizona and the STO's decisions. Kagan thus helpfully reframes Kennedy's question to make it look even more like there is state discrimination taking place here: If the state can't discriminate in a voucher program by itself, "why should the state be able to set up a system using intermediaries that exist for no other reason than to administer this program?"
Paul Bender then stands to defend the Arizona taxpayers, and among a sea of polished Supreme Court advocates, he looks comforting, like someone's old Uncle Herb who does trusts and estates in Boise. He really believes that his clients are being forced to pay tax dollars toward religious schools, and he seems kind of grumpy that the justices don't just take him at his word on this. As he puts it, "[G]overnment benefits in a government-benefit program cannot constitutionally be given to the beneficiaries of the program on the basis of their religion."
Justice Antonin Scalia stops him: "So [the government] must positively disfavor religion?" Replies Bender, "No, you must give the money to the beneficiaries without taking the beneficiaries' religion into account." Scalia doesn't accept that a tax credit is the same as the government taking taxpayer money: "This money has never been in the government's coffers. The government has declined to take this money," he says.
Kennedy chimes in: "I have some difficulty that any money that the government doesn't take from me is still the government's money." He adds, "If you reach a certain age, you can get a—a card and go to certain restaurants and they give you 10 percent credit. I think it would be rather offensive for the cashier to say, 'and be careful how you spend my money.' " Bender tries to explain that if there were no state income tax, there would be no tax-credit program, but the court's conservatives aren't buying it. This leads to the best moment of the argument, when Bender urges the court to understand that you can't donate money that isn't yours. "Whose money is it? Is it the taxpayer's money who gives the $1,000 contribution? No. If you don't take my word for it, look at what the STOs say on their Web sites about this program. One of them says quite frankly: 'Hey, you can give charity with someone else's money; it's a miracle!' " (As an aside, the ad was from Chabad, an Orthodox Jewish organization.)
Bender notes that Arizona tax forms expressly say that you can pay your taxes by paying them or donating to an STO. Scalia says if that's the only problem, "they should revise their form," and then chuckles, "This is a major lawsuit?"
But of course this is a major lawsuit, and not just because the court is poised to do away with the most vital mechanism by which to enforce the Establishment Clause (taxpayer lawsuits), but also because at least four of the justices would go much further than that, allowing the state to be tangled up in religious matters. Nobody doubts that all this rests in Justice Kennedy's hands today, and his questions suggest that he is open to doing some kinds of Establishment Clause mischief, mostly because he is not necessarily willing to lock the door on the possibility of his ever doing other kinds of Establishment Clause mischief in the future.
Put simply, when a case is about whether your money is not really your money, and religion is not really religion, and the state is also not really the state, the question of whether the court is going to make law, or not-law, becomes vastly more problematic.