Why AI Regulation Has Become a 'States' Rights' Issue

Time​ Magazine

25-06-2025

A major test of the AI industry's influence in Washington will come to a head this week—and the battle has already revealed sizable fissures in the Republican Party.
Trump's 'Big Beautiful Bill' contains a provision that would severely discourage individual states from regulating AI for 10 years. Prominent Republicans, most notably Texas Senator Ted Cruz, have led the charge, arguing that a patchwork of shoddy state legislation would stunt the AI industry and burden small entrepreneurs.
But Massachusetts Democrat Ed Markey has drafted an amendment to strip the provision from the megabill, arguing that it is a federal overreach and that states need to be able to protect their citizens from AI harms in the face of congressional inaction. The amendment could be voted on this week—and could gain support from an unlikely cadre of Republicans, most notably Missouri Senator Josh Hawley, who dislikes the provision's erosion of states' rights.
'It's a terrible provision,' Hawley tells TIME. When asked if he had been talking to other Republicans about trying to stop it, Hawley nodded, and said, 'There's a lot of people who have a lot of big concerns about it.'
To strip the provision, Markey would need 51 votes: four Republicans in addition to every single Democrat. And it's unclear if he will get the necessary support from both camps. For example, Ron Johnson, a Wisconsin Republican, has criticized the provision—but told TIME on Tuesday that he didn't think it should be struck from the bill.
Regardless of the outcome, the battle reflects both the AI industry's influence in Washington and the heightened anxieties that influence is causing among many different coalitions. Here's how the battle lines are being drawn, and why key Republicans are defecting from the party line.
Fighting to Limit Regulation
Congress has been notoriously slow to pass any sort of tech regulation in the past two decades. As a result, states have filled the void, passing bills that regulate biometric data and child online safety. The same has held true for AI: as the industry has surged in usage, hundreds of AI bills have been proposed in states, with dozens enacted into law.
Some of the most stringent bills, like California's SB 1047, have faced fierce opposition from industry players, who cast them as poorly-written stiflers of innovation and economic growth. Their efforts have proven successful: After OpenAI, Facebook, and other industry players lobbied hard against SB 1047, Gavin Newsom vetoed the bill last fall.
Since then, the industry has been working to prevent this sort of legislation from being passed again. In March—not long after OpenAI CEO Sam Altman appeared with Donald Trump at the White House to announce a data center initiative—OpenAI sent a set of policy proposals to the White House, which included a federal preemption of state laws. In May, Altman and other tech leaders came to Washington and warned Congress that the regulations risk the U.S. falling behind China in an AI arms race. A state-by-state approach, Altman said, would be 'burdensome.'
For many Republicans, the idea of industry being shielded from 'burdensome' regulation resonated with their values. So Republicans in Congress wrote language stipulating a 10-year moratorium of state AI regulation in the funding megabill. One of the provision's key supporters was Jay Obernolte, a California Republican and co-chair of the House's AI Task Force. Obernolte argues that an array of state legislation would make it harder for smaller AI entrepreneurs to grow, further consolidating power into the hands of big companies which have the legal and compliance teams to sort through the paperwork.
Obernolte argues that he wants AI regulation—but that it first should come from Washington, and that the moratorium would give Congress time to pass it. After that core legislation is figured out, he says, states would be able to pass their own laws. 'I strongly support states' rights, but when it comes to technologies that cross state lines by design, it's Congress's responsibility to lead with thoughtful, uniform policy,' Obernolte wrote in an email to TIME.
This week, Senator Cruz altered the provision slightly, changing it from an outright ban to a stipulation that punishes states which pass AI legislation by withholding broadband expansion funding. If all Senate Republicans now vote for Trump's megabill wholesale, then the provision would pass into law.
Fighting Back
But the moratorium has received a significant amount of blowback—from advocates on both sides of the political aisle. From the left, the Leadership Conference on Civil and Human Rights led 60 civil rights organizations opposing the ban, arguing that it would neuter vital state laws that have already passed, including the creation of accuracy standards around facial recognition technology. The ACLU wrote that it would give 'tech giants and AI developers a blank check to experiment and deploy technologies without meaningful oversight or consequences.'
Senator Ed Markey has drafted an amendment to strip the provision from the bill, and is attempting to mobilize Democrats to his cause. 'Whether it's children and teenagers in need of protection against predatory practices online; whether it's seniors who need protection in being deceived in terms of their health care coverage; whether it is the impact of the consumption of water and electricity at a state level and the pollution that is created—an individual state should have the rights to be able to put those protections in place,' he tells TIME.
Markey says he's open to AI innovation, including in medical research. "But we don't want the sinister side of cyberspace through AI to plague a generation [of] workers, families, and children," he says.
Sunny Gandhi, vice president of political affairs at the AI advocacy organization Encode, pushes back on the common industry talking point that state regulation harms small AI entrepreneurs, noting that bills like California's SB 1047 and New York's RAISE Act are specifically designed to target only companies that spend $100 million on compute.
Criticism from the left is perhaps expected. But plenty of Republicans have expressed worries about the provision as well, imperiling its passage. A fellow at the Heritage Foundation came out against the moratorium, as did the Article III Project, a conservative judicial advocacy group, on the grounds that it would allow Big Tech to 'run wild.'
Georgia Republican Marjorie Taylor Greene has been particularly vocal. 'I will not vote for any bill that destroys federalism and takes away states' rights,' she told reporters this month.
Tennessee Republican Marsha Blackburn has also expressed concern, as she is especially sensitive to worries about artists' rights given her Nashville base. 'We cannot prohibit states across the country from protecting Americans, including the vibrant creative community in Tennessee, from the harms of AI,' Senator Blackburn wrote to TIME in a statement. 'For decades, Congress has proven incapable of passing legislation to govern the virtual space and protect vulnerable individuals from being exploited by Big Tech. We need to find consensus on these issues that are so vitally important to the American people.'
But some Republicans with concerns may nevertheless reluctantly vote the provision through, giving it the numbers it needs to become law. Johnson, from Wisconsin, told TIME that he was 'sympathetic' with both arguments. 'I'm all about states' rights, but you can't have thousands of jurisdictions creating just a chaos of different regulation,' he says. 'So you probably do have to have some moratorium. Is 10 years too long? It might be. So maybe I can cut it back to five.'
—With reporting by Nik Popli