I honestly don't have a firm position on government funding of the arts. On one hand, it seems inappropriate and frivolous as long as more important government services are underfunded, and I find it hard to believe that there aren't more important government services that could use more funds. On the other hand, if National Public Radio and Public Television could not exist without their partial funding from the government, that possibility alone makes me in favor of government funding of the arts, at least in those two ultra-specific ways.
In spite of my conflicted and uncertain views on government funding of the arts, I don't mind holding the view that no video games should be funded by tax dollars. The linked article above lists the following for kinds of projects that grants are available for:
Projects may include high profile multi-part or single television and radio programs (documentaries and dramatic narratives); media created for theatrical release; performance programs; artistic segments for use within an existing series; multi-part webisodes; installations; and interactive games. Short films, five minutes and under, will be considered in packages of three or more.
Besides video games, I would just as soon not see government funding of "webisodes," multi-part or otherwise. :) The list is disturbingly broad. Whatever the criteria are for deciding what projects are worth funding with public money, I hope the criteria are highly selective, and any criteria that lets through video games or webisodes seems insufficiently rigorous to me.
At the same time, I'm very poorly informed on the issue of government funding of the arts, and on the fields of video games and webisodes. If anyone can show me a single video game or webisode that many people agree has great artistic merit, I may reconsider my bias against them being federally funded.
(... Wait. No, I take that last line back. I'd like to be as magnanimous and open-minded as possible, but there are just too many important artists out there who can't make ends meet readily enough to keep making art. If we're handing out grants to artists, let's make some effort to put the least important ones towards the back of the line, and if we're short on funds, let's drop the least important artists first. My apologies to struggling game developers everywhere!)