Trump's AI Action Plan resurrects state, fed battle over regulation

The issue of states regulating — or not regulating — AI is back in a big way.

On Wednesday, the White House unveiled the AI Action Plan, its highly-anticipated report identifying key areas for federal AI policies. The plan largely focuses on pulling back restrictions for tech companies in order to foster AI innovation and secure the U.S. as a global industry powerhouse. Part of these recommendations laid out in the sweeping report bring back policies that look an awful lot like the AI moratorium that Republicans tried to pass in the Big Beautiful Bill Act.

The Senate voted 99-1 to remove the proposed 10-year ban on state regulation of AI from the budget bill. But the AI Action Place looks to bring it back, citing "states with burdensome AI regulations that waste [federal] funds" as bureaucratic barriers to AI prosperity.

In the section titled "Remove Red Tape and Onerous Regulation," the plan advises the Office of Management and Budget (OMB) to "work with Federal agencies that have AI-related discretionary funding programs to ensure... that they consider a state’s AI regulatory climate when making funding decisions and limit funding if the state’s AI regulatory regimes may hinder the effectiveness of that funding or award."

Essentially, the plan seeks to give agencies the power to withhold federal funding based on whether states align with the Trump Administration's AI regulatory strategy.

The AI moratorium is back

"This is the AI moratorium, redux," Cody Venzke, Senior Policy Counsel, Surveillance, Privacy, and Technology for the ACLU told Mashable in an email. Despite the Senate's almost unanimous rejection of the proposal, "the Administration is nonetheless looking to give AI companies a blank check," said Venzke. "Although the legal mechanisms might differ, the effect is the same: it opens the door to AI harms that are already occurring, and negating states are already stepping up." 

Critics of the AI moratorium said it would erase states' abilities to protect their residents from AI harms. Those condemning this section of the AI Action Plan echoed those same concerns. "In the absence of Congressional action, states must be permitted to move forward with rules that protect consumers," said Grace Gedye, policy analyst for AI issues at Consumer Reports. "Today’s action leaves states in a lurch; it’s unclear which state laws will be considered 'burdensome' and which federal funds are on the line."

Some industry experts, like Gabriel Weil, a professor at Touro Law Center, are raising questions about the AI Action Plan's lack of specifics.

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Tying state AI regulation to federal funding was the final iteration of Republicans' AI moratorium. The proposal that was rejected by the Senate offered $500 million in federal broadband funding if states voluntarily opted for the moratorium. Before being voted down, it was ultimately softened to offer financial incentives instead of enforcing an outright ban on states' legislative abilities. The AI Action Plan has taken a similar approach of offering a carrot instead of a stick, but with the stick looming nearby.

"This is also incredibly dangerous; this administration has regularly used federal funds as a cudgel to attack state and local policies they disagree with, often doing so without transparency or due process," said Venzke, who added that such policies could impact any number of "AI-related" funds from education to rural communities building broadband access.

Feds overstepping?

The AI Action Plan also advises the Federal Communications Commission (FCC) to evaluate whether "state AI regulations interfere with the agency’s ability to carry out its obligations and authorities," invoking the Communications Act of 1934. This law gives the FCC authority to ensure that all Americans have access to telecommunication services. Yet, Venzke is skeptical that the FCC's authority extends to overruling AI state regulation in this area. "The FCC's authority generally does not include the services that ride on those lines or airwaves, like websites, social media, TV programs, or apparently even broadband service," he said.

Venzke also questions whether the president has the authority to conditionally offer federal funding without states' consent. "Likewise, the Executive Branch can only impose conditions on funds if Congress permits it by law — there is no reason to believe that Congress gave that permission for many of the programs that are likely to be impacted," he added.

Another way of framing the state AI legislation issue is as prudent oversight of how states can effectively manage federal funding, as one X user noted. Plus, "at the moment, it’s hard to identify any significant source of 'AI-related federal funding' to states, although this could change in the future," wrote Charlie Bullock, senior research fellow for the Institute for Law and AI. "This being the case, it will likely be difficult for the federal government to offer states any significant inducement towards deregulation unless it first offers them new federal money."

However, Venzke notes that privacy laws, broadband deployment, technology development funds, and deepfake laws are among the state programs that could be affected.

For now, it seems that states with concerns about AI's proliferation — from its impact on education to the job market to environmental degradation — better start making plans to evade the federal government's reach.