Red tape? More like chains, thanks to deficit spending and subsidies

Federal subsidies and grants are infamous for having strings attached. That’s nothing new, but those strings are increasingly chains.

Businesses are being seduced into corporate welfare schemes and suspect public-private partnerships that arise from recent infrastructure and inflation laws, fueled by massive deficit spending. From agriculture to energy, from telecommunications to transportation, America’s most productive enterprises—and even the supply chains undergirding them all—are increasingly beholden to governmental whims thanks to these grants and subsidies.  

Federal agencies are hard at work leveraging subsidy programs to advance policy goals. They are advancing extra-legal regulatory requirements.

A prime example is the modern cornucopia of broadband rollout initiatives, one of which is the Broadband Equity, Access, and Deployment (BEAD) program created by the Infrastructure Investment and Jobs Act (IIJA). This campaign is administered by the Department of Commerce’s National Telecommunications and Information Administration (NTIA).

Members of the Senate Commerce Committee wrote to the NTIA. The senators were alarmed at extra-legal regulatory abuse of the BEAD program via competitive grants criteria outlined in NTIA’s “Notice of Funding Opportunity” (or “NOFO”). Requirements not to be found in the IIJA, and protested by the senators, included but were not limited to:

• Labor/hiring conditions imposed on broadband buildout projects, such as prioritization by would-be grantees of “individuals with past criminal records” and the “justice-impacted”;
• Boosting of government-owned networks by making applicants justify the selection of traditional broadband providers when municipal providers had submitted competing proposals;
• Favoring of wireline/fiber as opposed to neutrality with respect to consideration of fixed wireless and satellite;
• Unauthorized rate regulation by requiring states to “ensure that high-quality broadband services are available to all middle-class families in the BEAD-funded network’s service area at reasonable prices”; and
• Unauthorized climate mandates whereby “eligible entities must account not only for current [climate-related] risks but also for how the frequency, severity, and nature of these extreme events may plausibly evolve as our climate continues to change over the coming decades.”

The abuse of BEAD is just one example of the misuse of subsidies to regulate. My colleagues Daren Bakst and Paige Lambermont have explored similar abuses by the Environmental Protection Agency of the Inflation Reduction Act’s provisions with respect to car tailpipe and power plant emissions.

President Biden likes to say America stands at an “inflection point,” and indeed it does. Given the prominence of grants and subsidies in the Biden administration’s pursuit of “whole of government” progressive policy ends, Congress needs to fully appreciate the sweep of subsidy programs and their unique ripeness for abuse.

Immediately below is a sampling of sectors and the federal funding they receive. Given the current administration’s regulatory agenda, all are vulnerable to new pressures from regulators unless Congress does something about the new rule by subsidy.

• Agriculture: Price supports, crop insurance, and direct payments to farmers
• Energy: Incentives and grants for “renewable” wind and solar boondoggles as well as the misguided ones for traditional fossil fuels
• Technology: Startups and established tech companies alike receiving R&D grants, incentives and tax credits (dozens of new “tech hubs” populate the nation)
• Manufacturing: Regional and national grants, incentives, and job training programs
• Transportation: Infrastructure spending on public transport, airlines, automobile manufacturers, and so-called energy-efficient vehicles
• Healthcare: Subsidies for medical research, pharmaceutical companies, medical device makers, and universities
• Education: Subsidies supporting research and infrastructure in K-12 and higher ed; as well as dollars supporting educational programs
• Housing: Affordable housing development and homeownership assistance
• Financial services: Incentives for investment in underserved areas, and chains attached to bailout funds
• Environment and conservation: Grants and tax incentives for businesses and organizations that affirm adoption of purportedly sustainable conservation practices
• Small business: Subsidies, grants, and loans of various sorts
• Defense and aerospace: Massive contracts, grants, and federal R&D funding supporting national security and technological advancement

In many of these bulleted categories, the Biden administration has celebrated its interventions, claiming it is growing the economy “bottom-up, middle-out” when the obvious top-down consolidation and centralization seem unprecedented.

Ongoing deficit spending (to race along at over $1.5 trillion annually according to new Congressional Budget Office projections) enables grants-in-aid, subsidies, and similar adventures in contracting and procurement that threaten to remove the “competitive” part of competitive enterprises.

It may seem utopian to ponder, but had a policy banning subsidies been in place (some state constitutions make valiant attempts that could be emulated), much of the political predation enabled by COVID and the ensuing economic downturn that contributed to the current state of affairs would not have been possible.

The nexus of excessive regulation and bloated federal grantmaking and subsidies poses a significant challenge to economic prosperity and individual liberty. Businesses, states and localities all deserve to operate more independently of Washington and its uninvited policy objectives.

While it pursues needed regulatory reforms, it is also vital that Congress curtail subsidies and, in turn, the unwise market interventions that they entail.