The Trump administration and its Department of Government Efficiency reformers have exposed many spectacular cases of excess and abuse in the federal bureaucracies. Most are vestiges of the Biden administration’s DEI, green energy, and sex-and-gender enthusiasms, but jaded Washington insiders such as ourselves see them as the latest installment of a long-running series with a constant theme.
For decades, executive agencies have accumulated tremendous autonomous power with few checks or balances. Congress has promoted their growth, while judicial interventions have been intermittent and vacillating. The result has been empowering to both fevered ideologues and coolheaded rent seekers.
The next episode will stream this Wednesday, not in a flaming White House press release but a decorous argument before the Supreme Court. Federal Communications Commission v. Consumers’ Research challenges the FCC’s “universal service” program, which subsidizes telephone and internet service to people with low incomes, people in rural areas (including people with high incomes), and certain schools, libraries, and healthcare facilities.
Established by statute in 1996, the program was a response to the collapse of the New Deal model of telecom regulation: The AT&T monopoly would divert some of its profits from long-distance calls to rural callers and carriers at FCC-approved rates. Instead of leaving the newly competitive telecom market alone, Congress contrived to replicate the embedded subsidies. It did so, alas, by delegating both its taxing and appropriating powers, its constitutional crown jewels and highest responsibilities, to an already powerful regulatory agency. The FCC then fused taxing and spending to create an industry entitlement program managed by the industry itself.
This is a perfect storm of congressional shirking and concentrated power. The universal service subsidies, coming to about $8 billion annually, are funded by a tax on telephone service that the commission adjusts every quarter to match its program spending. The FCC calls the tax a “contribution” but will prosecute if you don’t pay it.
Program advocates liken it to entrance fees at national parks and charges for processing passports, but those are charges for services rendered by agencies whose spending is budgeted and appropriated by Congress. For an agency to decide its own spending budget, and then continuously adjust its own tax to keep pace with the spending, is an arrangement unlike anything else in the often-carefree annals of federal finance. It has generated more than $225 billion of taxing and spending over the life of the program.
Moreover, the whole enterprise — designing the subsidy programs; calculating, imposing, and collecting the taxes; and distributing the proceeds — is actually in the hands of a private nonprofit group, the Universal Service Administrative Company, which formally reports to the FCC but is in practice self-governing. Members of the USAC Board of Directors “represent various interest groups” (its terms) that pay the program’s taxes and receive its subsidies.
These include AT&T, T-Mobile, and smaller carriers; equipment suppliers; schools, libraries, and consumer-advocacy groups; and state agencies involved in administering the program. Board members are “nominated by their respective interest groups” and confirmed by the FCC chairman. They appear to be fine people, but as a group, they exemplify and codify the corporate-bureaucracy syndicates that bestride modern government.
Since the program’s inception in the late 1990s, the communications revolution has led the FCC-USAC team to expand universal service subsidies from the landline telephones of yore to mobile smartphones, broadband computer connections, and all the way to Wi-Fi routers on school buses so children can stay online while traveling to and from school. But the tax base has remained (by statute) the long-distance revenues of telephone carriers, which have fallen steeply with the growth of internet platforms.
To compensate, FCC-USAC has increased its tax rate radically, from 5.7% in the second quarter of 2000 to 19.6% in the second quarter of 2020 to 36.6% for the second quarter of 2025 — by far the highest federal excise tax. Most carriers itemize a portion of it on their bills; your monthly statement probably lists a “Federal Universal Service Fee” as the largest of the several taxes charged directly to customers.
The universal service program has done little or nothing for universal service. Mobile phones and the internet have become ubiquitous in rural areas and among those of low income. Most schools, libraries, and healthcare facilities have been hooked up for years (to the dismay of many teachers). This is thanks to the alacrity of today’s high technology, massive private investments, profound improvements in service quality and proficiency, and constantly falling prices.
The FCC program has been marginal at best and sometimes perverse. The huge telephone tax has unsubscribed many low-income customers, and few have bothered with the hassle and restrictions of obtaining FCC subsidies for service from government-approved carriers. But the commission and USAC have been uninterested in the empirical evidence on these matters or in redirecting their resources toward remaining coverage gaps that private markets ignore.
The program’s defects are due in large part to the political insulation and financial self-dealing that the challengers in the Supreme Court case regard as unconstitutional. Most subsidies are paid directly to carriers. Continued spending on schools and libraries reflects the interest-group composition of the USAC board. Standards for hardware and service have constantly fallen behind fast-improving market offerings. Carrier commitments to target low-income rural households have fallen by the wayside once buildouts were completed.
Service subsidies are paid to carriers on behalf of existing subscribers they regard as qualified, which does exactly zero for universal service. And the program has been an easy mark for fraudsters, who have collected billions of dollars of improper payments, documented in a long series of Government Accountability Office reports lamenting lackadaisical USAC controls.
The Supreme Court’s “nondelegation doctrine” is in flux, and the FCC case could go either way. For a court drowning in its “Trump emergency docket,” the case may be an opportunity for a conciliatory ruling. A bipartisan group of legislators has filed a brief in support of the program, and the Trump Department of Justice is defending it as vigorously as the Biden DOJ had done. President Donald Trump’s FCC chairman, Brendan Carr, would like to extend the universal service tax to newer, fast-growing forms of communications, so as to fund expanded subsidies.
FCC LAUNCHES WIDE DEREGULATION EFFORT AS AGENCY INVESTIGATES BROADCASTERS
To our minds, such deference would be unwarranted. Bipartisanship alone is not a signal of institutional good sense, let alone constitutional fidelity. It may, at least in this case, signal the opposite: an embedded interest-group racket that no election or DOGE could ever dislodge.
If the program passes muster, it will be a beta-tested model for agencies that consolidate regulating, taxing, and spending, managed by agency “stakeholders,” governed only by aspirational legislative standards (make good things universal, and have a nice day!). With the court’s imprimatur, that would be the next growth trajectory of autonomous executive government.
Christopher DeMuth is a distinguished fellow in American thought at the Heritage Foundation. Michael S. Greve is a professor of law at the Antonin Scalia Law School.