Senate Drops Ban on State AI Regulations from Tax Bill

The Trump administration’s tax bill, initially named the "big, beautiful bill," faced significant revisions during the "vote-o-rama" proceedings in the Senate. A key provision in the bill aimed to prevent states from enforcing their own AI legislation for five years and threatened to withhold up to $500 million in AI infrastructure funding for non-compliance. This rule was a scaled-down version of an earlier proposal that sought a 10-year ban on state AI regulations and tied $42 billion in broadband internet funding to compliance. On June 27th, the Senate voted 99 to 1 to remove this moratorium on states’ ability to regulate AI, marking a decisive victory for tech and civil rights advocates. Prior to this vote, the rule had been amended to include exemptions for state laws targeting unfair or deceptive practices and child sexual abuse material (CSAM). However, these changes did not mollify critics who argued that the ban would create an imbalance where some states would lack the funding to enforce AI regulations, while others could proceed with inadequate oversight. Core Arguments and Stakes Jonathan Walter, a senior policy adviser at The Leadership Conference’s Center for Civil Rights and Technology, emphasized the importance of state and local governments having the authority to protect residents from harmful technologies. He warned that the vague language of the ban could inadvertently limit oversight of non-AI-powered automation, including insurance algorithms and autonomous vehicle systems. According to Walter, the primary concern is the real and documented harms associated with AI, particularly in areas like HR tech, hiring, and financial applications, where AI has exhibited biases and discriminatory behavior. Chas Ballew, CEO of AI agent provider Conveyor and a former Pentagon regulatory attorney, echoed these sentiments. Ballew noted that the ban would eliminate state-level accountability mechanisms, creating a "dangerous regulatory vacuum" that would allow AI companies to deploy harmful systems without oversight. He described this scenario as a "free pass" that could last for up to a decade, underscoring the potential risks to public safety and civil rights. Advocacy Efforts The successful removal of the moratorium was the result of extensive advocacy efforts. Adam Billen, vice president of public policy at Encode, a Washington, D.C.-based organization for responsible AI, praised the outcome. He highlighted the collective action of 40 state attorneys general, 14 governors, 260 state lawmakers, and numerous organizations that rallied against the ban. Despite the initial support from some of its sponsors, the provision ultimately failed, with even its primary backers voting to remove it. Federal AI Policy and Current Context The Trump administration's handling of AI policy thus far suggests a focus on innovation and deregulation rather than safety and oversight. Since January, the administration has reversed several initiatives and partnerships initiated by the Biden administration to enhance AI safety. Additionally, the US AI Safety Institute has been renamed the "pro-innovation, pro-science" US Center for AI Standards and Innovation, and funding for AI research has been reduced. These actions indicate that the administration is unlikely to address the critical issues surrounding faulty and discriminatory AI systems in its upcoming AI policy, scheduled for release on July 22nd. In the absence of clear federal guidelines, several states have taken matters into their own hands, introducing AI legislation to mitigate the risks associated with rapidly evolving AI technologies. The urgency for state-level regulation reflects the current ambiguity in federal policy and the immediate need to safeguard citizens from potential AI-related harms. Rationale for State-Level Regulation While many AI companies prefer a single, federal regulatory framework to streamline compliance, state-level regulation is often necessary to address specific regional needs and legal contexts. Ballew pointed out that states have distinct approaches to employment law, consumer protection, privacy, and civil rights, which require tailored AI regulations. He argued that a diversity of regulatory schemes promotes greater accountability, as state and local officials are directly responsible to the communities they serve. Billen further explained that the push for state-level regulation is driven by the proximity of state and local officials to the people affected by AI policies. This closeness allows for more nuanced and responsive governance, crucial for addressing the unique challenges posed by AI in different regions. Impact on Broadband Funding Before the amendments, the Senate rule tied $42 billion in broadband internet funding under the Broadband Equity, Access, and Deployment (BEAD) program to states' compliance with the AI regulation ban. The revised version only threatened $500 million in AI-specific funding, but this change still raised concerns about the potential financial pressure on states to forego their own AI oversight measures. Industry Insider Evaluation Industry experts and policymakers view the Senate's decision to remove the moratorium as a significant step towards ensuring balanced and effective regulation of AI. The move reflects a growing recognition of the immediate and diverse impacts of AI, necessitating a multifaceted approach to oversight. Organizations like Encode and The Leadership Conference's Center for Civil Rights and Technology continue to advocate for robust regulation that prioritizes ethical considerations and protects vulnerable populations. Company Profiles Encode, a Washington, D.C.-based organization, focuses on promoting responsible AI practices through policy advocacy and community engagement. The Leadership Conference’s Center for Civil Rights and Technology works to ensure that emerging technologies are developed and deployed in ways that uphold civil rights and protect individuals from harm. Both organizations played pivotal roles in rallying support against the proposed AI regulation ban, highlighting their commitment to equitable and safe technological advancement.