Lawmakers Aim to Halt AI Regulations in New Budget

As artificial intelligence reshapes industries and daily life, a heated debate over how to regulate this transformative technology has reached Capitol Hill. In a move that’s both bold and controversial, lawmakers have embedded language in the 2025 federal budget reconciliation bill that would block state and local governments from regulating AI for the next decade. If passed, this provision—dubbed the “AI Moratorium”—would halt the enforcement of nearly all state AI laws, including those addressing everything from consumer privacy and bias audits to deepfakes and algorithmic transparency. It’s a sweeping preemption that’s drawing both praise from industry advocates and sharp criticism from consumer protection groups.

Why Now? The Push for Federal AI Policy

Congress has been slow to pass comprehensive AI legislation, even as AI-powered tools have become ubiquitous in healthcare, finance, and beyond. States, sensing the urgency, have rushed to fill the void. According to the National Conference of State Legislatures (NCSL), over 900 state AI bills have been introduced in 2025 alone, with many focused on mitigating risks such as algorithmic bias, privacy violations, and the spread of misinformation[3]. California, Colorado, and others have already enacted laws requiring transparency, risk assessments, and oversight for AI systems, especially in sensitive sectors like healthcare[1].

But this patchwork of regulation has become a headache for companies, especially small businesses and startups that lack the resources to comply with a tangle of conflicting state laws. “We’re tracking more than 900 state AI bills. This potential surge of contradictory and overlapping policy proposals would quash small business AI innovation, most of which poses minimal risk,” said ACT | The App Association President Morgan Reed[1].

What’s in the Bill? The Fine Print

Buried in the legislative text of the House Energy and Commerce Committee’s budget reconciliation bill is a provision that would immediately stop states from enforcing any law regulating AI models or systems until 2035[1][2][4]. The ban is comprehensive, with only narrow carveouts for laws that facilitate AI adoption—think streamlined licensing or permitting—but substantive rules on transparency, bias, or risk would be off-limits[2].

Supporters argue this federal preemption is necessary to foster innovation and prevent a regulatory quagmire. Gary Shapiro, CEO and vice chair of the Consumer Technology Association, has praised the move, saying it would benefit AI startups and established businesses alike[1]. Meanwhile, opponents warn that the ban could leave consumers unprotected from AI-driven harms.

“This ban will allow AI companies to ignore consumer privacy protections, let deepfakes spread, and allow companies to profile and deceive consumers using AI,” said Rep. Jan Schakowsky (D-Ill.), ranking member of the committee’s Commerce, Manufacturing, and Trade Subcommittee[2].

The Policy Landscape: States vs. Feds

Historically, the U.S. has taken a decentralized approach to technology regulation, with states often serving as laboratories for new policy ideas. This has led to innovation in areas like data privacy, but it’s also created complexity for companies operating across state lines. The AI Moratorium would mark a rare, sweeping federal intervention in tech policy, effectively nationalizing AI regulation (or the lack thereof) for a decade.

Critics worry that the federal government hasn’t yet demonstrated the will or capacity to regulate AI effectively. With no comprehensive federal AI law on the books, the moratorium could leave a dangerous vacuum, some argue. On the other hand, proponents believe a single, national framework—even one that’s delayed—could ultimately provide more clarity and consistency than a patchwork of state laws.

Real-World Impacts: Who Wins and Loses?

For businesses, especially those in the tech sector, the moratorium could be a boon. Startups and small companies, in particular, would no longer have to navigate a maze of state regulations, potentially accelerating innovation and reducing compliance costs. But consumer advocates and civil rights groups fear that the lack of oversight could lead to abuses, from discriminatory algorithms to unchecked surveillance and the unchecked spread of deepfakes.

In healthcare, where AI is being used for everything from diagnostics to patient management, the stakes are especially high. Without state-level safeguards, patients could lose protections against algorithmic bias and opaque decision-making. The same goes for sectors like finance, education, and law enforcement, where AI decisions can have life-altering consequences.

The Future: What Happens Next?

As the House Energy and Commerce Committee prepares to mark up the bill, the AI Moratorium is likely to face intense scrutiny, especially under the Byrd Rule, which limits what can be included in reconciliation to measures that directly impact federal spending or revenue[2]. If it survives, the provision could set the stage for a decade of unfettered AI development—or, depending on your perspective, a decade of unchecked risk.

Looking ahead, the debate over AI regulation is far from over. Will Congress finally step up and pass comprehensive federal AI laws? Or will the moratorium simply delay the inevitable reckoning with AI’s risks and rewards? Only time—and the political process—will tell.

A Quick Comparison: State vs. Federal AI Regulation

Conclusion: The AI Moratorium and the Road Ahead

The debate over AI regulation is, at its core, a struggle between innovation and accountability. While the proposed moratorium would give tech companies breathing room to innovate without the friction of state-level red tape, it also raises urgent questions about how to protect consumers, patients, and citizens in an AI-driven world. As Congress weighs its next moves, the stakes couldn’t be higher—for the tech industry, for policymakers, and for society at large.

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