The FCC and Its Private Taxman Go to Court

There are seismic tremors rocking the U.S. regulatory state. Chevron deference is dead, the Department of Government Efficiency (DOGE) is attempting to make large cuts in federal spending and hiring, and President Donald Trump has brought “independent” agencies to heel with increased presidential oversight. Also notable—though it has received little fanfare—is that late last year, the Supreme Court agreed to hear FCC v. Consumers’ Research, a case that could shake the foundations of the modern administrative state.

Congress routinely passes vague, open-ended statutes, leaving major elements of policymaking to unelected bureaucrats. Unfortunately, courts have been reluctant to rule that Congress has delegated too much power to an agency since the New Deal. Cass Sunstein, the Robert Walmsley University Professor at Harvard, once quipped that the so-called nondelegation doctrine “has had one good year”—1935, when the Supreme Court struck down two vague laws—and over 200 “bad ones.”

However, a few years ago, several justices signaled a willingness to revive the nondelegation doctrine, and FCC v. Consumers’ Research involves one of the most egregious examples of congressional abdication to an agency in modern memory.

After breaking up AT&T for holding a monopoly on local and long-distance phone service, Congress passed the Telecommunications Act of 1996. Section 254 of that law instructs the Federal Communications Commission (FCC) to create a financial “support” system to subsidize telecommunications services for favored constituencies, including rural households, schools, and libraries. Congress left it to the FCC to determine how to fund this subsidy program.

Notably, the law does not cap the amount of money the FCC can raise. Eventually, the FCC settled on collecting a fixed percentage of phone companies’ long-distance service revenues and cutting checks to tech and telecom companies.

But the FCC doesn’t actually exercise those powers. Instead, it delegates its rate-setting and disbursement functions to a private nonprofit called the Universal Service Administrative Company (USAC)—an entity Congress never authorized in the statute. Comprised largely of industry insiders and subsidy recipients, the USAC has exploded the size of the universal service fund, from $753 million in 1996 to $8.4 billion in 2023. The USAC’s regular exactions from phone companies and customers operate on autopilot. Indeed, it appears the FCC’s passive approvals of USAC tax rates would continue even if the FCC lacked a quorum to conduct normal agency operations.

The U.S. Court of Appeals for the 5th Circuit rightly struck down this accountability-shrouding subsidy program. The problem is simple: The Constitution grants the people’s elected representatives in Congress “all legislative Powers,” including the power “to lay and collect taxes.” Representatives’ obligation to stand for election constrains them from recklessly raising taxes, but the USAC—a private, unaccountable, and self-perpetuating nonprofit—faces no such restraint.

The stakes are high, and it is promising that the Supreme Court wants to weigh in. Its decision is expected this spring or summer. 

The Constitution does not permit Congress to delegate its legislative powers, nor does it allow the government to empower a group of private citizens to exercise the sovereign power of taxation. Suppose Congress can offload its constitutional taxing and spending duties onto the FCC and USAC. What stops it from empowering grocers to set the food stamp budget, hospital executives to set the Medicare budget, or defense contractors to set the defense budget? Under the Constitution, Congress must make such difficult decisions itself—and face the people’s judgment.

The Cato Institute authored an amicus brief in FCC v. Consumers’ Research, supporting Consumers’ Research.

The post The FCC and Its Private Taxman Go to Court appeared first on Reason.com.