I think it is not that local code does not get a free pass by itself but the combination. By letting cloud services that use GPL software stay closed source it

I think it is not that local code does not get a free pass by itself but the combination. By letting cloud services that use GPL software stay closed source it actively encourages development of cloud based tooling in a commercial context and users end up getting forced to sign up with and connect to a closed source cloud service they have even less control over than traditional locally running closed source software. I think Stallmans motivation for the FSF includes a story about modifying a driver for a printer to support new features. Now imagine if that printer had a cloud based interface and imagine how the GPL would help Stallman add features for a new printer to it. It doesn't, if he wanted to fix the interface he would have to reverse engineer it from scratch. 40 years of FSF and it lets a decades old trend run circles around its goals.