The FAA had NO ROLE in spaceflight. None. Zip. Zero. Nada....
Rockets only minimally fly briefly up through the airspace and then [sometimes] back down, but until Musk came along, the descent was never within US airspace. The FAA has no legal [direct, Constitutional] authority over airspace outside of the USA.
Then, as commercial space came along, the FAA wanted in on the game. They asked the congress to give them a role... purely to be helpful, of course. The congress, being mostly stupid idiots, were easily persuaded to give the FAA a role in helping this new activity... and within a very short time, the FAA was demanding tons of paperwork before granting "launch licenses" for rocket launches, and now requiring "reentry licenses" for vehicles returning through the atmosphere (even for reentries into the Indian Ocean or the South Pacific). The threat, of course, is that if a company does not play along with the fraud that the FAA has jurisdiction over the South Pacific, then the FAA won't issue the [now required] launch license (which IS within US airspace). This has all worked very well to embed the claws of the FAA into spaceflight where it never belonged. We now have years of experience and a track record that establishes several points:
[A] The FAA had no expertise in spaceflight and therefore nothing to offer to people like Musk with actual experience (well, nothing other than the previously non-required regulation and oversight)
[B] The FAA's role in spaceflight is to slow it down and make it more costly. Before the FAA got involved, no innocent civilians were ever negatively impacted by rockets launching or re-entering/landing (it turns out, that harming civilians is bad for PR and insurance rates, so rocket people have always been responsible folks in this regard WITHOUT an FAA "helping them"). Now, as we saw with Musk's recent Starship test, the FAA is willing to inject itself into launches to delay them for environmental studies (not previously the purview of the FAA) which included analysis of whether falling rocket debris MIGHT kill a shark in the ocean (something the NASA that put men on the moon never had to worry about), whether fresh water dumped onto a beach might be a problem, and (by strapping headphones onto sea turtles and blaring them with simulated rocket launch sounds) whether turtles might be upset by rocket launches. The turtles in question survived the tests, but they're not saying how they felt about what to them must have seemed an "alien abduction" complete with probulation...
[C] The FAA is already performing very badly at its core job (maintaining safety in the airline biz, see: Boeing) yet finds itself on a power-mad totalitarian streak so extreme it now claims dominion over ALL the nation's airspace (starting at zero inches above the grass in your backyard and reaching all the way to orbit) to the point that it now demands that children's toy drones and model airplanes have transponders in them that the police can use to hunt-down operators (nothing to do with air safety - the transponders are NOT part of the ADSB system used in manned aviation). Having so extended its "mission", the FAA now routinely demands more power and authority and money from congress. Indeed, is recently announced that it was so far behind in processing launch licenses because it needs nmore people and more money, which it would not need had it not insisted on jamming its nose into space flight and model airplanes.
[D] With the imposition of large new fees that no previous rocket companies had to pay, but which all current operators will be able to pay, the FAA is engaging in the most-classic and most-corrupt government action ever invented: Regulatory Capture. Any new entrants into the market will have an additional hurdle, and those already in the market will eventually grow to love the fees as an anti-competitive play, while they then ramp-up political lobbying and (eventually) "campaign contributions" (AKA "bribes") as well as job offers, board seats, and stock options to former government bureaucrats and politicians (aka "bribes").
[E] now that they have ripped-off their mask, we can now see that the FAA is, like every other damnable government agency, on the prowl for money and power. This was NEVER about "helping" the fledgling commercial space industry - it was about grossly expanding the power of the agency and its totally unaccountable, un-elected, and largely anonymous career employees. If this were TRULY about de-conflicting the airspace to keep airline passengers safe from those nasty rocket things, there was already a FREE way to do it: erect a permanent NOTAM restriction around every launch site, and simply require each launch provider to notify local air traffic control of the dates and times when activity would occur in these areas with perhaps a 24 hour lead time. The Coast Guard must similarly protect mariners, which they do. Hopefully THEY won't try to grease their way onto the same gravy train...
Note for those of you NOT in the aerospace sector: The FAA is NOT what has made airline travel so safe. That distinction goes to an EXCELLENT government outfit called the NTSB whose people ARE experts in their fields and whose job it it to get to the root cause of all transportation disasters and then tell government and industry how to avoid repeating them. The combination of the NTSB, with [mostly] responsible people in the aerospace industry and the customers and insurers, all of whom have a big stake in safety and drive the sector to mostly adopt the recommendations of the NTSB, are the actual reason for the safety of the system. The FAA are the guys who did not trust semiconductors enough, even into the 1980s and 90s, and thus caused the air traffic control system to still run on vacuum tubes YEARS after the rest of the world were using computer chips [finally resolved now]. They're also the guys causing deaths in private aviation every year by [1] being the main obstruction to the average small plane having an Angle of Attack Indicator, [2] having access to new cheap reliable and accurate semiconductor-based instruments - relying instead in decades-old "steam gauges" because they cannot afford the over-priced-due-to-regulation better stuff. and [3] over-regulating small planes and pilots so it's nearly impossible to be profitable mass-producing ready-to-fly affordable planes for individuals, and so challenging to get and keep a license that people end up being deceptive on medical issues rather than properly managing medical matters and continuing to fly safely. The FAA is an agency BLIND to the damage they do, and too amped-up on government power and control.
The founders of this nation, who went to war [the mass-death and destruction kind] over relatively minor things like a tea tax, would be absolutely shocked to see that the FAA even exists, let alone that it thinks it controls all the air over the nation from altitude zero-inches-AGL to space. Ben Franklin could not have flown his kite with the FAA around. The Wright Brothers could not have succeeded at Kitty Hawk had the FAA been around. Probably NONE of the greats of early aviation would have become famous/great with this Washington DC beast on the prowl. Not Lindburg. Not Wiley Post. None of them.