It is easy to see that tax credits and governmental expenditures can have similar economic consequences, at least for beneficiaries whose tax liability is sufficiently large to take full advantage of the credit. Yet tax credits and governmental expenditures do not both implicate individual taxpayers in sectarian activities. A dissenter whose tax dollars are "extracted and spent" knows that he has in some small measure been made to contribute to an establishment in violation of conscience. In that instance the taxpayer's direct and particular connection with the establishment does not depend oneconomic speculation or political conjecture. The connection would exist even if the conscientious dissenter's tax liability were unaffected or reduced. When the government declines to impose a tax, by contrast, there is no such connection between dissenting taxpayer and alleged establishment. Any financial injury remains speculative. And awarding some citizens a tax credit allows other citizens to retain control over their own funds in accordance with their own conscience.
Got that? It only affects you if your taxes are higher because a check is being cut to "an establishment". If your taxes are higher because that same establishment is getting a refund on their taxes (which we might often call "getting cut a check"), you're not being affected. In this case, it means that you can't object that your taxes are higher because of government support of religious institutions.
As Kagan (and Avi Schick of Slate) point out, Kennedy had to ignore five previous cases that found no distinction in order to made his weak argument:
As Justice Kagan points out in her powerful dissent, since creating the Flast exception, the Supreme Court has been presented with five separate challenges to tax-benefit programs by plaintiffs who invoked taxpayer standing. In each of those five cases, the court reached the merits of the claim even though the challenged program did not involve any direct government expenditure. Kennedy's rather weak retort is to note that while standing may have been assumed in each of those cases, the question wasn't explicitly addressed in any of them. His implication is that in five hard-fought Establishment Clause cases argued over a period of many years, the court, the parties and the solicitor general all somehow failed to notice the plaintiff's lack of standing to even bring the lawsuit.
Schick spends a lot of time on the hypocrisy of liberals and conservatives in this case and others like the No Taxpayer Funding for Abortion Act. I think I've been consistent in arguing that tax breaks are spending. In any case, Kennedy's acrobatics to make his case are now putting into case law a meaningless distinction between types of government expenditure.