Taxing Authority Can't Be 'Delegated,' Says Amicus Brief Backing Consumers' Research

The 6th U.S. Circuit Court of Appeals should grant Consumers’ Research’s request for a rehearing of its challenge of the FCC’s USF 2021 Q4 contribution factor because the authority to decide taxing and spending policies can't be "delegated,” said the Competitive Enterprise Institute and the Free State Foundation in an amicus brief Tuesday (docket 21-3886).

“Only elected members of Congress, representing the will of the people, may decide these issues,” said the brief. The FCC’s “regulatory scheme” under 47 U.S.C. Section 254 for “exacting revenue for government subsidies doled out by the Universal Service Administrative Co. [USAC] operates as an unconstitutional delegation of legislative authority,” it said.

Even if the 6th Circuit were to agree with the 5th Circuit panel that the FCC could lawfully raise taxes on its own, the appointment of USAC as the “permanent Administrator” of the program “cannot stand absent clear congressional authorization,” it said. The Constitution doesn’t permit Congress to “circumvent the legislative process by allowing an independent agency (guided by a private company owned by an industry trade group) to raise and to spend however much money it wants every quarter for ‘universal’ telecommunications service at the expense of every American who pays a monthly phone bill,” said the brief.

The brief cited National Cable Television Association v. U.S., where the court ruled “taxation is a legislative function” and “Congress is the sole organ for levying taxes.” It referenced the court’s decision in Department of Transportation v. Association of American Railroads, citing the Constitution’s “accountability checkpoints." It said: "It would dash the whole scheme if Congress could give its power away to an entity that is not constrained by those checkpoints.”

The FCC can't hand off regulatory power to a private entity just as Congress can’t delegate legislative power to an executive branch agency, said the brief. The FCC's appointment of USAC as the “permanent Administrator” of the USF “raises a serious separation-of-powers issue,” it said.

Though the FCC ostensibly has the authority to set USAC’s budget and approve its disbursements, the company doesn’t administer the USF “as the FCC’s agent,” said the brief. The agency exercises power over the fund only “indirectly, essentially by overseeing USAC,” it said, citing the Code of Federal Regulations. “Through agency inaction, the budget -- including the ‘contribution factor’ (which really acts as a tax) -- is deemed approved by the Commission,” it said. USAC brings in nearly $10 billion annually in “contributions (ultimately borne by consumers), which it then disburses however it wants,” the brief said.

Congress provided no direction for how the FCC or USAC should calculate rates for service providers, said the brief, nor is there statutory guidance for what qualifies as an “equitable and nondiscriminatory” contribution, or a specified ceiling, for the amount of fees that the commission can collect or distribute in a year. That the panel read section 254 as permitting the FCC to rely on a private company to administer the USF “is delegation running riot,” it said, citing Schechter Poultry v. U.S.

Deciding how best to spend billions of dollars each year -- including whether to connect telecommunications services to high-cost residences, schools, libraries or rural medical facilities -- “encompasses precisely the hard choices that must be made by the elected representatives of the people, not a private company controlled by interested parties,” the brief said.