Senate Removes AI Regulation Ban from Trump's Tax-Cut Bill

In a decisive bipartisan move, the U.S. Senate voted 99-1 on July 1, 2025, to remove a proposed 10-year ban on state-level regulation of artificial intelligence (AI) from President Donald Trump's comprehensive tax-cut and spending bill. This provision aimed to centralize AI oversight at the federal level by withholding funding from states unless they refrained from regulating AI.

The original provision sought to impose a decade-long moratorium on state and local governments from enacting or enforcing regulations on AI technologies. Included in President Trump's "One Big Beautiful Bill," the measure intended to prevent a fragmented regulatory landscape that could potentially stifle innovation and hinder the United States' competitiveness in AI development, particularly against nations like China.

The moratorium faced significant bipartisan opposition. Critics argued that it would undermine existing state protections on issues such as child safety and consumer rights. Senators Marsha Blackburn (R-TN) and Maria Cantwell (D-WA) led the charge to remove the provision. Blackburn, who has been active in promoting legislation to protect children online and safeguard artists from AI imitations, initially considered a compromise with Senator Ted Cruz (R-TX) to shorten the ban to five years and allow limited state regulation. However, she later withdrew her support, emphasizing the necessity of comprehensive federal legislation before limiting states' ability to enact protective regulations.

Senator Edward Markey (D-MA) also played a pivotal role in opposing the moratorium. He highlighted that the provision would force states to choose between enforcing AI consumer protections and accepting federal funding to expand broadband access. Markey, along with Cantwell, filed an amendment to strip the entire provision from the bill, emphasizing that the so-called compromise still allowed the federal government to use funding as leverage against states and prevented them from protecting children online from Big Tech's predatory behavior.

Governors and attorneys general from various states expressed concerns that the moratorium would strip states of their ability to address emerging harms associated with AI technologies. They argued that states have been at the forefront of implementing protections against AI-related issues, such as deceptive practices and privacy violations.

Major AI firms, including Google and OpenAI, supported the federal preemption of state regulations to avoid a patchwork of requirements that could complicate compliance and innovation. They contended that a unified federal approach would better position the U.S. in the global AI race.

Consumer advocacy groups backed the Senate's decision to remove the moratorium, emphasizing that states have led the way in bringing transparency to flawed AI decision systems and protecting consumers. They argued that future federal legislation should complement existing state laws rather than undermine them.

The Senate's decision to strike the AI regulation moratorium underscores the ongoing debate between federal authority and states' rights. By preserving states' ability to regulate AI, the Senate has affirmed the importance of localized governance in addressing the unique challenges posed by rapidly evolving technologies. This move also reflects a broader skepticism toward granting unchecked freedom to AI companies without sufficient oversight mechanisms in place.

This event is reminiscent of past legislative efforts where federal preemption was proposed to streamline regulations across states. However, the overwhelming bipartisan rejection of the AI moratorium highlights a growing consensus on the need for balanced approaches that consider both innovation and consumer protection.

The Senate's decisive action to remove the AI regulation moratorium from the tax and spending bill reflects a commitment to preserving states' rights in the face of rapid technological advancements. This development sets the stage for ongoing discussions on how best to regulate emerging technologies in a manner that balances innovation with consumer protection.