As artificial intelligence (AI) rapidly develops and transforms the industry in the U.S., there is increasing concern and debate about who should regulate its development and deployment. In the absence of comprehensive federal regulation, states have largely taken on the responsibility of enacting and enforcing data privacy laws. California, for example, has the California Consumer Privacy Act (CCPA) and the California Privacy Rights Act (CPRA); and in 2020, California established the California Privacy Protection Agency (CPPA) as the country’s first dedicated privacy regulator.
AI regulation and enforcement has, for the most part, followed a similar path. AI-related laws have been enacted in California, Colorado, and other states. But Congress may change that in the very near future.
The Proposed Federal Mortarium
On May 14, 2025, the U.S. House Energy and Commerce (“H&C”) Committee approved a provision in a budget bill that would impose a 10-year moratorium on state and local government regulation of AI and automated decision-making systems. The budget bill—named the “One Big Beautiful Bill Act”—is the subject of much political discussion and negotiation in the nation’s capital, particularly with respect to issues like tax cuts and Medicare. The moratorium is just one provision in this 1,000-page bill.
House Republicans claim this moratorium is necessary to prevent conflicting state regulations and to protect against state-level AI laws that could jeopardize AI innovation in the U.S. Uniformity would also avoid the piecemeal approach prevalent with privacy law in the U.S. that has been the source of much frustration for tech companies, online businesses, and consumers.
Two days after the House H&C Committee passed the bill, the U.S. House Budget Committee voted against advancing the budget bill. Republican lawmakers have pulled in opposite directions on the bill’s proposed changes to Medicare. Lawmakers expect, however, to quickly resurrect some version of the budget bill, which is expected to include the federal moratorium.
State-Level Pushback
The proposed moratorium faces significant opposition from state-level lawmakers and officials across the political spectrum. Last week, a bipartisan group of 40 state attorneys general collectively urged Congress to reject the moratorium. Critics characterize the moratorium as a major step backwards. Thousands of AI bills are pending in state legislatures nationwide. The moratorium would effectively kill these bills and block state legislatures from passing laws in response to current and future issues related to AI, like discriminatory lending, unsafe autonomous vehicles, or invasive workplace surveillance.
Critics of the bill point out that this is not a circumstance where, for example, federal legislation is being proposed or enacted to replace or preempt state laws. Rather, Congress is not proposing a regulatory system for AI systems nor is it offering any alternatives to current or anticipated state laws. In short, state-level regulation would cease, and everyone would be left to wait for the federal government to fill that vacuum.
Privacy law gives little reason to believe that the federal government would fill that vacuum. Congress has not passed comprehensive privacy legislation, leaving states with the bulk of the responsibility of legislating, regulating, and overseeing privacy issues. For that reason, states have been at the forefront of enacting laws to address issues like AI-generated deepfakes, algorithmic discrimination, and transparency in AI usage.
For now, we can only wait and see.
For more information on artificial intelligence (AI), please contact Jason Kelly, Esq., AIGP, CIPP/US/E at jason@annagueymccann.com.
