The Government’s Unprecedented Equity Portfolio Has a Distressingly Weak Legal Foundation

Scott Lincicome

As my colleague Tad DeHaven announced here earlier this week, Cato just launched the Restoring Free Enterprise project to analyze the federal government’s growing and unprecedented ownership of private US companies and to propose ways to reverse this troubling trend. The United States’ new portfolio — now encompassing 35 different companies across a range of industries — raises numerous problems that the RFE project will document, and my latest Dispatch column covers what may be the most basic one: the complete lack of explicit legal authority to do any of these equity deals. 

As shown in the following table, the Trump administration has cited several laws to justify the government’s new shareholding arrangements, yet none of them expressly authorize the executive branch to take an ownership stake in a private US company.

These laws explicitly authorize grants, loans, and other government subsidies and contain vague language (e.g., “other transactions”) that the Trump administration has interpreted as justifying government shareholding. However, I explain in my column:

• No US president prior to Trump has taken such an expansive view of these laws or used them to acquire shares of a private US company.
• Congress has expressly authorized government equity stakes when it wanted the executive branch to be able to take them (see, e.g., the Troubled Asset Relief Program and the CARES Act). It rejected equity authority in the CHIPS Act, and it has not yet approved recent Republican proposals to authorize the Pentagon to make equity investments.
• Trump administration officials have publicly admitted that the executive branch lacks equity authority in several instances, and they have asked Congress to provide such power (which, again, it hasn’t yet done).
• The Trump administration has failed to offer a solid public justification for any of these deals on any legal grounds, and leaked internal memos are alarmingly weak sauce. This March, the Pentagon promised Congress an official memo outlining the legal basis for its equity deals, but we’re still waiting for it.

As I explain in my Dispatch column, the administration’s approach here raises a host of legal and practical problems and could, ironically, make unwinding these deals more difficult. It also sets the stage for the president — Trump or his successor — to do more equity deals and assert even more state control over private businesses and the US economy.

A forthcoming RFE essay by Cato legal expert Molly Nixon will dig into these and other legal questions in greater detail. In the meantime, be sure to check all the other new RFE content we’ve just put online.