The Senate misses its moment on AI, but the fight is far from over

By James Erwin

The U.S. is currently winning the artificial intelligence race with China, just barely. President Trump has articulated a vision for American dominance of AI, but the Senate has already undermined this goal by stripping a much-needed moratorium on state AI regulation from One Big, Beautiful Bill. To realize the president’s ambitions, Congress must correct this mistake in the next reconciliation package.

The Big, Beautiful Bill’s enactment prevented a $4.5 trillion tax increase. It provided across the board permanent pro-growth tax cuts, the repeal of Biden’s green energy subsidies, spectrum auction authority, and welfare reform for Medicaid and SNAP. All are historic victories for innovation and fiscal sanity.

However, a ten-year state AI moratorium championed by Representative Jay Obernolte (R-Calif.) and Senator Ted Cruz (R-Texas) was the package’s biggest missed opportunity. This provision would have protected the bounty AI could yield for our society – gains in productivity, health outcomes, and national security – from ill-considered state laws threatening the industry. Like the Internet Tax Freedom Act before it, a federal AI moratorium would assert Congress’s right to regulate AI, preventing hasty state action that could derail its potential.

AI developed in any one state will not stay there and remain subject solely to local jurisdictions. AI is plainly interstate commerce, and Congress should invoke the Commerce Clause to prevent an unnavigable patchwork of regulations restricting developers. One of the primary purposes of the U.S. Constitution was to create a continental free-trade zone by abolishing import duties between states and deferring regulatory questions on cross-state industries to Congress. Congress has not only a right but a responsibility to intervene in favor of permissionless innovation and free markets against state governments seeking to impose a mother-may-I regime.

Despite Senator Cruz’s successful effort tying the moratorium to broadband subsidies to comply with the Byrd Rule, the moratorium was stripped during the Senate’s marathon vote-a-rama by a vote of 99-1. The good news is that this vote does not indicate the true extent of opposition to the measure (Cruz himself voted to strip it) – it merely reflects an agreement to drop the issue for the sake of the broader package.

Further encouragement for the pro-innovation crowd can be found in Speaker Mike Johnson’s announcement that there will be another reconciliation effort in the fall and potentially a third in the spring. This will give free marketeers two more chances to build a winning coalition around federal AI preemption.

The failure of the moratorium is also an invitation for states to impose onerous regulations on AI, and really for California to set progressive national standards for the big developers domiciled on the Left Coast.

The California legislature has already passed destructive AI legislation, vetoed by Governor Newsom as too left-wing for even him. Last session’s Senate Bill 1047 would have imputed liability for “harmful” uses of AI to developers rather than the people who actually commit crimes with the technology, similar to the progressive attempt to hold gun manufacturers liable for mass shootings. Except that under the vetoed California law one need not even commit a real crime, just an imagined “harm” from the latest progressive therapist’s handbook.

A similar bill to mitigate “bias” and “harms” as defined by New York Democrats has passed the Empire State’s legislature and awaits Governor Hochul’s signature. That conservatives now rely on the good judgement of Gavin Newsom and Kathy Hochul to save us from left-wing AI regulation should make us all shudder.

Republican opposition to AI preemption is couched in federalist arguments, but this misunderstands the battle. A vote against a moratorium is a vote to empower Sacramento at the expense of Nashville. Republicans rightly recognized this with respect to emissions standards when they voted to overturn California’s EPA waiver for more stringent regulation of car manufacturers. The same logic obtains – either Congress sets the standards or California will.

The failure of the state AI moratorium is a disappointment for American innovators, who are at the mercy of more than one thousand state proposals. It is also a blow to conservatives’ hard-won policy victories in the reconciliation bill.

Unless we see significant GDP growth in the next year, Democrats could win the midterms and with them the argument. Voters must feel the benefit of tax cuts and cheaper energy in their paychecks to legitimize those policy victories, and those captured by Medicaid work requirements need good-paying jobs available to wean them off the public dole.

Growth generally comes one of two ways: either the workforce expands, or each worker becomes significantly more productive through technological advances. AI’s productivity gains are the missing ingredient to accelerate GDP growth.

President Trump is right to set lofty ambitions for our country, and conservatives should support out-growing China and out-innovating the world. To do so, and make sure the policy wins in the Big Beautiful Bill stick, Congress must do its job and preempt state AI laws.