One of the most promising pro-innovation policies in years was quietly stripped from the recently passed reconciliation package—and the consequences could be profound.
A provision that would have blocked state-level regulation of artificial intelligence for the next decade, while offering states $500 million in broadband incentives to defer to federal leadership on AI, was removed in final negotiations. Congress should bring it back as soon as lawmakers return from summer recess. No other proposal would do more to safeguard American leadership in artificial intelligence.
The stakes are clear. In 2024 alone, all 50 states introduced AI-related bills, and over 75 of those measures have already become law. The result is a rapidly forming patchwork of conflicting and often duplicative rules that threaten to smother innovation just as AI is starting to reshape core sectors of the U.S. economy, from life sciences to logistics.
Even Silicon Valley’s most cautious voices see the danger. “A patchwork across the states would probably be a real mess,” OpenAI CEO Sam Altman warned in a June 25 interview, noting that trying to comply with 50 different regimes would “slow us down at a time when I don’t think it’s in anyone’s interest for us to slow down.”
The current White House sees the danger clearly and is taking action to prevent it. The president made clear just days after taking office that he wants the U.S. to become the “world capital of artificial intelligence.”
This is a commendable goal. AI is already driving advancements in drug development, cybersecurity, automation, and logistics. Microsoft recently estimated that AI could add $3.8 trillion to the U.S. economy over the next 13 years.
Thanks to world-class universities and open capital markets, the U.S. leads the world in AI development. But that lead is fragile. China, while trailing in training talent, already outpaces us in AI-related patents. And if the U.S. adopts a Balkanized regulatory structure, we’ll surrender our advantage quickly.
However, some politicians, both in Washington and in state capitols, seems determined to make that happen. State-level bills, like many states’ proposed investigations of AI use in rent-setting or California’s attempted regulation of foundational models, reflect a growing hostility to tech-driven innovation. While some concerns about AI are valid, many of these measures are driven more by fear and ideology than fact.
It is important for the federal legislation to adequately address child safety and the prevention of deep fakes for fraud, revenge porn, and other crimes.
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This mirrors the previous presidential administration's skepticism of tech and AI.
Its 2023 AI executive order imposed punitive restrictions on AI innovation and growth. Moreover, in the run-up to last year’s election, the DOJ launched politically timed antitrust lawsuits targeting several tech-enabled companies.
One was RealPage, a company that uses AI to help landlords estimate competitive rents. The DOJ accused it of driving up housing costs, even though landlords retain full pricing discretion and the software is essentially a data analytics tool.
Another target was Visa, which was bizarrely charged with
These cases weren’t about protecting competition — they were about blaming inflation on AI and tech innovation. As the Wall Street Journal Editorial Board wrote, “What’s really going on here is an attempt to distract voters from frustration over...inflationary policies.” Even efficient, consumer-friendly firms using technology to reduce costs or improve access weren’t safe from prosecution if they threatened the administration’s political narrative.
That same attitude underpinned the past administration's AI policy—a reflexive mistrust of innovation and a desire to control it from the top down.
The current White House has taken the opposite approach, revoking the misguided 2023 AI executive order and shifting focus toward real economic competitiveness and infrastructure.
While America still leads the world in AI research and commercial deployment thanks to its universities, capital markets, and entrepreneurial energy, that lead is fragile. China, though behind in talent development, now surpasses the U.S. in AI-related patents—and will quickly surpass us in deployment if we handcuff our own innovators with 50 different regulatory playbooks.
Some state-level experimentation has merit, but the current rush to regulate AI—often driven more by fear or ideology than facts—will hurt the very people lawmakers claim to protect. We’ve already seen this with California’s attempt to impose sweeping rules on foundational models and with states considering broad investigations into AI-powered rent-setting tools. The risks of overregulation are real, and the costs could be generational.
The solution is federal leadership and national coherence. Congress should revisit the AI shield provision that was removed from the reconciliation bill. It would prevent a regulatory race to the bottom, incentivize broadband expansion, and ensure the U.S. remains the global AI leader.
This is one of the most important economic policy choices Congress will make this year—and we can’t afford to get it wrong.
Reynold Schweickhardt is a non-resident senior fellow for Congressional Modernization with the Foundation for American Innovation's policy team. Previously, he was Senior Technology Advisor at the General Services Administration. Prior to that, he was Strategic Advisor at the U.S. House of Representatives’ Office of the Chief Administrative Officer, and Director of Technology Policy for the Committee on House Administration. He has also served as Chief Technology Officer at the U.S. GPO, and as an R&D project manager for Hewlett Packard.
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