To protect liberty and promote accountability, our Constitution exclusively tasks the People’s elected representatives in Congress with making policy choices and accessing the People’s pocketbooks: “All legislative powers herein granted shall be vested in a Congress of the United States.” Congress can exercise this power only through duly enacted legislation that survives bicameralism and presentment, a deliberately difficult process designed to ensure such laws reflect broad political consensus. Among those specific legislative powers given to Congress is one “to lay and collect Taxes.” As the Supreme Court has said, “[t]his text permits no delegation of those powers” to other entities. And doubly so, the Constitution bars Congress from transferring these powers to private parties; as the Supreme Court put it, “[t]his is legislative delegation in its most obnoxious form; for it is not even delegation to an official or an official body.”  

But as Professor Philip Hamburger has observed, today’s “nondelegation doctrine serves as little more than an open gate for the delegation of legislative power—even if the sign above the gate declares the opposite.” Under current precedent, all that Congress must do to justify a delegation of legislative power is provide an “intelligible principle” when delegating power to federal administrative bodies to regulate private conduct—a notoriously lax test. But that may soon change. As Justice Thomas recently noted, “[a]t least five Justices have already expressed an interest in reconsidering th[e Supreme] Court’s approach to Congress’s delegations of legislative power.” And the Court will have the opportunity to do so this Term.

Agency Delegation

In July, in Consumers’ Research v. Federal Communications Commission, the Fifth Circuit sitting en banc ruled 9-7 that the Universal Service Fund (USF)—a telecommunications social welfare program funded by a tax Congress never voted on that appears on peoples’ phone bills as the “Universal Service Fund fee”—is unconstitutional, holding that “this misbegotten tax violates Article I, § 1 of the Constitution.” In so doing, the Fifth Circuit broke with the Sixth and Eleventh Circuits, which had rejected Consumers’ Research’s nondelegation challenges to the USF in related litigation. (Notably, two judges on the Eleventh Circuit panel wrote separately, indicating that they believed that, as an original matter, the USF unconstitutionally delegated legislative power, but that they thought they were bound by current Supreme Court precedent to uphold the law. Judge Newsom, concurring in the judgment, expressed the view that the nondelegation “challenge fails . . . only because non-delegation doctrine has become a punchline.” In a separate concurrence, Judge Lagoa suggested that the “current nondelegation doctrine” “has strayed from constitutional first principles.”) On November 22, the Supreme Court granted certiorari in Federal Communications Commission v. Consumers’ Research and Schools, Health & Libraries Broadband Coalition v. Consumers’ Research, to resolve the circuit split, consolidating the petitions.

The USF was established by Section 254 of the Telecommunications Act of 1996. Section 254 broadly tasks the FCC (and a Federal-State Joint Board) with setting “policies for the preservation and advancement of universal service.” Congress, however, said precious little about how to do this, instead punting the policy choices necessary to achieve these broad, abstract aims to unelected administrative officials. Congress did not, for example, deign to meaningfully define “universal service.” Instead, the statute mandates that “[e]very telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the [FCC] to preserve and advance universal service.” Eleventh Circuit Judge Newsom described the interpretive challenge posed by this statutory language thus: “Candidly, I have no idea what that means.”

The statute likewise grants the FCC sweeping and standardless discretion to add “universal service” principles it deems “necessary and appropriate for the protection of the public interest, convenience, and necessity.” On top of this, Congress further empowered the FCC to effectively tax carriers to fund its social welfare program. The FCC does this by regulation at a tax rate set quarterly known as the Contribution Factor. The upshot is that Congress did not meaningfully constrain the FCC’s authority to make the policy choices associated with the universal-services program and effectively gave the agency a blank check to raise whatever revenue is required to fund those choices, thereby allowing Congress to avoid the political accountability associated with tax hikes while taking credit for any popular features of the universal-services program. In Judge Newsom’s view, “such empty, mealymouthed shibboleths provide no meaningful constraint; to the contrary, they confer front-line law- and policymaking power on unelected, unaccountable agency bureaucrats.”

Private Nondelegation

But somehow it gets worse. The FCC has re-delegated its authority over the USF to a private corporation, the Universal Service Administrative Company (USAC). Although no statute expressly grants the FCC authority to subdelegate these powers, and Section 254 does not mention this possibility or USAC, this private entity is tasked by regulation with calculating the Contribution Factor and thus for all practical purposes decides the rate at which the carriers—and, by extension, the general public—are taxed. Judge Oldham, writing for the en banc Fifth Circuit majority, said the FCC “has delegated the power to dictate the amount of money that will be exacted from telecommunications carriers (and American consumers in turn) to promote ‘universal service.’” Judge Oldham summed it up this way:

American telecommunications consumers are subject to a multi-billion-dollar tax nobody voted for. The size of that tax is de facto determined by a trade group staffed by industry insiders with no semblance of accountability to the public. And the trade group in turn relies on projections made by its private, for-profit constituent companies, all of which stand to profit from every single tax increase.

As matter of first principles, this arrangement seems impossible to square with the Constitution’s demands on at least two levels. First, Congress has transferred its power to make legislative policy choices and levy taxes to unelected administrators. Second, the FCC has decided to outsource taxing power (which was unconstitutionally delegated to it to begin with) to a private company staffed by industry insiders. Each of these decisions independently makes a mockery of the Constitution’s separation of powers.

For the Fifth Circuit, however, the questions at issue—whether the USF passes muster under the “intelligible principle” standard and whether the FCC’s delegation of taxing power to private parties runs afoul of the private nondelegation doctrine—seem to be close calls under current Supreme Court precedent. (Given that the majority sparred with the dissenting opinions’ suggestion that Consumers’ Research’s constitutional challenges were foreclosed by current Supreme Court precedent, this is perhaps unsurprising.)

The Fifth Circuit found that “the power to levy USF ‘contributions’ is the power to tax—a quintessentially legislative power”; “Congress through 47 U.S.C. § 254 may have delegated legislative power to FCC because it purported to confer upon FCC the power to tax without supplying an intelligible principle to guide FCC’s discretion”; and “FCC may have impermissibly delegated the taxing power to private entities.” Later in the opinion, the Fifth Circuit reiterated that it was “highly skeptical that the contribution factor . . . comports with the bar on congressional delegations of legislative power,” as well as “similarly skeptical that it comports with the general rule that private entities may not wield governmental power, especially not without express and unambiguous congressional authorization.”

The Combination Theory

But the Fifth Circuit determined that it “need not definitively answer either delegation question because even if § 254 contains an intelligible principle, and even if FCC was permitted to enlist private entities to determine how much universal service tax revenue it should raise, the combination of Congress’s broad delegation to FCC and FCC’s subdelegation to private entities certainly amounts to a constitutional violation.” Under this holistic theory, “an agency action involving a broad congressional delegation and an unauthorized agency subdelegation to private entities violates the Constitution even if neither of those features does so independently.” The en banc majority “h[e]ld that the universal service contribution mechanism’s double-layered delegation ‘is incompatible with our constitutional structure,’” quoting the Supreme Court’s decision in Seila Law v. CFPB, which held that the CFPB’s structure violated the separation of powers based on a combination of constitutionally suspect features. The Fifth Circuit noted that it could “find no historical precedent for broad delegations of Congress’s power to tax” and found that “USF’s double-layered delegation ‘is an innovation with no foothold in history or tradition,’” quoting Seila Law. In response to a dissenting opinion’s suggestion that its ruling would have disruptive consequences, the majority explained that its “decision applies to a narrow question, implicating just one federal program that is doubly insulated from political accountability,” and that, in any event, “Congress could obviate the constitutional problem by simply ratifying USAC’s decisions about how much American citizens should contribute to the goal of universal service.”

Judge Elrod, joined by Judges Ho and Engelhardt, concurred, arguing that the court should have “go[ne] one step further and address[ed] the lawfulness of each individual delegation.” In her view, “Congress’s delegation of legislative power to the FCC and the FCC’s delegation of the taxing power to a private entity each individually contravene the separation of powers principle that undergirds our Constitutional Republic.”

Judge Ho separately concurred, observing that “[o]ur Constitution establishes three branches of government, not four,” and explaining that “[i]t vests ‘[a]ll legislative Powers herein granted’—including the ‘Power To lay and collect Taxes’—not in some unnamed fourth branch of government, but in ‘a Congress of the United States.’” He emphasized that “if we’re serious about protecting our constitutional democracy, we must enforce the principle that all legislative powers like the power to tax are indeed exercised by the people we elect.”

The Cert Grant

The questions presented by the SG’s petition are:

  1. Whether Congress violated the nondelegation doctrine by authorizing the Commission to determine, within the limits set forth in Section 254, the amount that providers must contribute to the Fund.
  2. Whether the Commission violated the nondelegation doctrine by using the Administrator’s financial projections in computing universal service contribution rates.
  3. Whether the combination of Congress’s conferral of authority on the Commission and the Commission’s delegation of administrative responsibilities to the Administrator violates the nondelegation doctrine.

The Court on its own initiative also directed the parties to brief and argue an additional question: “Whether this case is moot in light of the challengers’ failure to seek preliminary relief before the Fifth Circuit.”

Depending on how the Court chooses to answer these questions, this case has the potential to be a blockbuster. But it remains to be seen which questions the Court chooses to tackle and in what order.

If the Court directly addresses the first question, this case could set landmark separation of powers precedent and limit Congress’s ability to punt its legislative responsibilities to other entities. Should the Court go down this path, it will be interesting to see how it formulates the nondelegation inquiry, including whether it does so in a tax-context-specific way, and how the Court defines the nature of legislative power Congress cannot constitutionally delegate. Needless to say, this line-drawing exercise would not be a cake walk. As Justice Thomas has observed, “[i]t may never be possible perfectly to distinguish between legislative and executive power.”

But at some point, the Court will likely need to begin the process of drawing the constitutional line, which it can do on a case-by-case basis. It may be that this will be a gradual process taking place over a series of cases. Congress’s unconstrained blank-check transfer of its power of the purse to unelected bureaucrats at the FCC is a good place to start that process. If the Court engages in this constitutionally necessary inquiry, it could go a long way toward restoring equilibrium among the branches and have salutary effects on the political health of our Republic. The sky would not fall if the Court were to hold that the USF violates Article I and invalidate Section 254 on that ground and in so doing begin the process of reviving the nondelegation doctrine.

This case may also clarify the metes and bounds of the private nondelegation doctrine, should the Court address whether the FCC unconstitutionally delegated to a private party government power to essentially set a tax rate. Yet another possibility is that the Court will view the dual-layer delegation at issue here—Congress’s broad delegation of authority to the FCC and the FCC’s subdelegation of its power to a private company—holistically, concluding that this unprecedented combination of delegations violates the separation of powers. Of course, it is always possible that the Supreme Court parts ways with the Fifth Circuit and concludes that this case is moot. But should the Court do so, it would presumably lead to more litigation—on an expedited briefing schedule—raising the possibility that the Court would need to address the merits questions on its emergency docket. That seems less than ideal.

As Chief Justice John Marshall famously wrote in McCulloch v. Maryland, “the power to tax involves the power to destroy.” That remains true today. And in this country, the foundational principle of “no taxation without representation” is a core shared value. That basic idea is what is at stake here. However the Court chooses to resolve this case, it should affirm the Fifth Circuit’s conclusion that the USF offends the separation of powers.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].