The House version of the “Big, Beautiful Bill” includes a 10-year moratorium on state and local regulation of AI models and systems. In this episode, listen to highlights from a congressional hearing held the day before the bill passed — including discussion of this sneaky little dingleberry.
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The Bill
One Big Beautiful Bill Act
- Section 43201: Artificial Intelligence and Information Technology Modernization Initiative
Audio Sources
Artificial Intelligence Regulation and the Future of U.S. Leadership
House Committee on Energy and Commerce: Subcommittee on Commerce, Manufacturing, and Trade
May 21, 2025
Witnesses:
- Sean Heather, Senior Vice President, U.S. Chamber of Commerce
- Adam Thierer, Senior Fellow, R Street Institute
- Marc Bhargava, Managing Director, General Catalyst
- Amba Kak, Co-Executive Director, AI Now Institute
Clips
30:50 Sean Heather:
Historically, Europe takes a precautionary approach when regulating. This means that Europe often regulates before there is well documented need. Further, the European Union exists to establish a “single market” to prevent its sovereign member states from creating a patchwork of laws. In recent years, we’ve seen a slew of digital economy regulation from Europe. Yet none of these policies have made Europe more competitive. Yet today, we now know Europe is woefully behind in key digital sectors, and as a result, the new justification to regulate has emerged. Tax sovereignty. The European Commission president has asserted that Europe must be able to make its own choices, while French president Macron has called for Europe to develop and roll out the key technologies of tomorrow. Fortunately, Europe is beginning to realize it cannot regulate its way to innovation and economic growth. In a recent critical self assessment requested by European officials, the Draghi report, found that Europe’s struggle to compete stems from burdensome EU regulatory regimes. Now let me turn to the EU AI Act. The Chamber believes the EU fails to achieve a balance between regulating risk and fostering innovation. First, Brussels failed to review its existing legal frameworks. AI is a technology, less so a product or service. Existing EU laws governing products and services are not suddenly made obsolete because of AI. Yet, rather than carefully evaluating gaps in existing law, the EU chose to add a layer of regulatory complexity at the expense of innovation. Beyond the law, the EU also establishes a code of practice. While not currently mandatory, we are concerned that it will function as a de facto benchmark for evaluating industry compliance with the law. The Code mandates extensive disclosure of sensitive business information to the regulator, downstream providers, competitors, including China and potentially the public. This raises two major risks. First, releasing the know-how behind the technology could enable misuse of powerful AI systems, and second, forcing the value of IP being disclosed undermines investment incentives. So why does this matter? Why not let Europe continue to regulate its way out of being a serious player on AI? First, we need partners. The transatlantic trade relationship is vital to the United States. Annually, trade and services alone is $475 billion and we enjoy a $75 billion trade surplus. Our competitive advantage in AI will power the future of our trading relationship. Second, we need to prevent the spread of the EU AI act from being adopted around the world and across the states. The EU’s approach to AI is already being considered in places like South Korea, Canada and Brazil. In the United States, the AI Act’s influence is noticeable. States like Colorado, California, Texas and Virginia have introduced AI regulations that echo Europe’s approach. The chamber is concerned that burdensome EU-like policies will be adopted domestically at the state level, potentially leading to fragmented regulatory landscape across the United States. Third, we care because we must not allow American companies to be discriminated against. The AI Act’s extraordinary extraterritorial reach imposes substantial compliance costs on US business, diverting considerable resources away from innovation and undermining our competitive edge. From requiring non-EU companies to appoint authorized representatives, to overly broad classifications of high-risk AI application directed at non-EU companies and more, the AI Act places American companies at a competitive disadvantage by imposing these barriers. The EU risks not only harming us businesses, but those discriminatory practices may also be replicated in other countries. Moreover, the Act opens the door for massive fines as high as 7% of global annual sales.
36:20 Amba Kak:
Let’s make this concrete and clarify what’s really at stake here. Last year, a chat bot created by character.ai lured a depressed 14 year old from Orlando, Florida, Sewell Setzer III, to commit suicide. Character.ai isn’t alone. Mark Zuckerberg tells us that these chat bots are a societal boon. After all, he thinks the average American has fewer than three friends, and the obvious solution, according to him, is to get people more attached to AI companions, just like he got our children hooked to social media. Meanwhile, AI voice cloning tech is enabling a new generation of scams that specifically target senior citizens. As just one example, a grandmother in Texas received a call from a voice indistinguishable from her grandson asking for bail money. It was a suspicious bank teller that intervened. But many, many others have not been so lucky, and in this new frenzy of chatbots and agents, it can be easy to forget that we actually already have a decade of far less shiny AI toys, the kinds that aren’t used by people, but are used on them, inscrutable AI systems that cut the in-home care of 4,000 disabled people in Arkansas Despite critical underlying medical conditions, or systems that falsely accused 40,000 people in Michigan of unemployment insurance fraud and denied them benefits. To state the obvious, AI is not a break from Silicon Valley’s sins of the past, but merely a continuation, and it’s also a market led and shaped by the very same players.
38:00 Amba Kak:
Now, when ChatGPT first launched in 2022 it seemed like this market was poised for disruption with a new crop of challengers, new faces. But now, just more than two years later, it’s clear that that bench is more of the same big tech and a few additional firms that are dependent on big tech for their survival. So put simply, building AI bigger and bigger requires enormous resources that these firms own and control, and so they play king maker for the downstream smaller players, the little guys that we’re going to hear about today, controlling access to inputs and also pathways to reach the consumer.
39:00 Amba Kak:
In this environment, the proposal for a sweeping moratorium on state AI related legislation really flies in the face of common sense. We can’t be treating the industry’s worst players with kid gloves while leaving everyday people, workers and children exposed to egregious forms of harm. In fact, there’s some air to clear on what states have been up to in the first place. Approximately half of all proposed legislation from the States was on deepfakes. Notably, States moved well before the Take It Down Act recently passed Congress. Several others have moved to clamp down on the AI related scams that I talked about. These bipartisan state measures have been nimble, they’ve been targeted, and they have weeded out the bad apples that nobody wants to be in business with. Another common sense theme across states, transparency, requiring disclosures to people affected by AI in sectors like healthcare, education, employment, I would argue, really the bare minimum for an industry that derives its power from obscurity. And to be clear, we should be treating these measures as the floor, not the ceiling. A moratorium on AI related state laws would, at a time when there are minimal federal laws in place, instead set the clock back and it would freeze it there.
42:25 Adam Thierer:
Even if one sympathizes with some of these bills, put yourself in the shoes of an entrepreneur who is pondering how to build the next great application only to face hundreds of different regulatory definitions, compliance requirements, bureaucratic hurdles and liability threats. Costly, contradictory regulation is a sure fire recipe for destroying a technological revolution and decimating little tech innovators.
43:10 Adam Thierer:
Some have correctly claimed that an AI moratorium would leave consumers unprotected online. In reality, AI-related harms can already be addressed under many existing policies and court based standards, including unfair and deceptive practices law, civil rights law, and other consumer protections.
44:45 Adam Thierer:
Under an AI moratorium, state and local lawmakers would still be free to pass new technology neutral rules, so long as they don’t interfere with interstate commerce.
45:30 Adam Thierer:
To win the so-called AI Cold War against China, America needs a forward looking, investment friendly national framework that keeps us on the cutting edge of the technological frontier.
46:00 Marc Bhargava:
My name is Marc Bhargava, and I’m a managing director at General Catalyst, or GC for short, and we invest in and partner with leading entrepreneurs to build towards global innovation and applied artificial intelligence. We are committed to investing in an array of entrepreneurs, particularly in transformative technologies like artificial intelligence. A small sampling of the 800 plus startups we have backed over 25 years include Airbnb, Stripe, Canva Andural, Circle Applied Intuition, Pacific Fusion, Commure, and many others.
48:15 Marc Bhargava:
Inflexible or premature regulation risks pushing innovation offshore and weakening our national and economic security. Alternatively as well, though, a complete absence of guard rails could lead to real societal harm and could erode the public trust. We deeply understand these dualities and to accomplish these goals, we believe a national regulatory framework is preferable to a patchwork of state policies.
49:40 Marc Bhargava:
We have seen where federal government inaction can cause confusion and slow innovation. 30 years ago, as the world was introduced to a new concept called the World Wide Web, states enacted a patchwork of laws to address various issues in the absence of the federal framework. However, it was Congress’s work, beginning in this very subcommittee, to adopt the Telecommunication Act of 1996 that set in place the national framework needed to allow for the growth of the Internet as we know it today.
51:20 Rep. Gus Bilirakis (R-FL):
Since Europe’s privacy law, the GDPR, went into effect, American companies have paid 83% of all fines levied by European regulators. I know you mentioned this that strikes me as an excessive means to subsidize their fiscal needs on the back of American businesses.
53:05 Sean Heather:
I would also point out that when these fines ultimately get before the European courts, American companies are actually having success. It takes a long time to get there, but the European courts have annulled these decisions in some cases and have reduced the fines.
58:30 Amba Kak:
If this moratorium were to go through, American consumers would have even less protections than they have today against some of the worst AI abuses and exploitation. So just to give you an example of the kind of incentives we’re already seeing proliferating, first, and I mentioned this in my testimony, we have new variants of scams, manipulative AI companions that are targeting those most vulnerable among us, not to mention our children. Number two, we have opaque, inscrutable AI systems that hit directly at people’s life chances, whether that’s in education or in the housing market or even in healthcare. And finally, we’re also seeing these secret algorithms use data about us sensitive data, to hike up prices, to depress wages, and also to collude and rig markets that they wouldn’t have been able to do otherwise.
1:05:10 Rep. Kathy Castor (D-FL):
The problem is that you’re putting the cart before the horse. You’ve now passed out of this committee a 10 year moratorium on all AI regulation at the state level before you even have that framework.
1:09:25 Amba Kak:
I think it’s important to note that when the FTC cracked down on Amazon Alexa for storing voice prints of children long after they should have, their response was that they were saving it indefinitely because AI. So AI has become a real free for all to trample on the rights of all consumers. But I would say, with greatest threat to young people and children.
1:22:30 Sean Heather:
My message today is one, we should not be like Europe. One, we should stop international patchworks and domestic patchworks in AI regulation. We should not be in a rush to regulate. We need to get it right, and therefore taking a time out to discuss it at a federal level is important. We would support a moratorium.
1:22:45 Rep. Jay Obernolte (R-CA):
So I just wanted to spend a minute talking about some of the things that have been said regarding the moratorium so far in this hearing. And I kind of feel an obligation to speak up as the chairman of the House AI Task Force last year, and as someone who saw this group of 24 members of Congress from both sides of the aisle all come together on this issue, it really hurts my heart that it’s being painted to such a divisive partisan issue, because I don’t think it is. You know, the assertion has been made that this was a last minute thing, and in the dead of night, I think someone used the phrase, it was inserted. But I want to talk about the motivation here, it’s been very alarming as we have seen the first five months of this year go by to see the number of bills introduced on the topic of AI regulation in state legislatures across the country, over 1000 now have been introduced, and this is what’s lending urgency to this issue. We wanted to put some money into the reconciliation bill to bring the same productivity gains to federal government that we’re seeing in private industry, but it quickly became apparent that it was going to be nonsensical to deploy $500 million to make that happen in federal government when this array of state legislation was going to interfere with the deployment of that effort, which is why we thought this was a timely time to do it. It’s been asserted this is a giveaway to big tech. I strongly would push back on that. Big tech are the ones who have the regulatory sophistication to deal with 1000 different state laws. The people who can’t deal with that are two innovators in a garage trying to start the next OpenAI or the next Google. Those are the people that we’re trying to protect. I know there’s been pushback about the 10 years, that it’s too long, that it’s draconian. No one wants this to be 10 years, right? I would love to see this be months, not years. But I think it’s important to send the message that everyone needs to be motivated to come to the table here. And also, let’s not forget, it’s been brought up our experience with state privacy and the struggles that we’ve had to enact a preemptive federal privacy standard. Well, guess who are the chief people who are opposing that effort? It’s the states. You know, the states got out ahead of this, they feel a creative ownership over their frameworks, and they’re the ones that are preventing us doing this now, which is an object lesson to us here of why we need a moratorium to prevent that from occurring. In the case of AI, it’s been asserted that this circumvents consumer protection laws. To anyone who thinks that, I would say RTFB, Read the Freaking Bill. Because we specifically put language in there that says that as long as your law does not specifically target AI, you can continue to enforce it, which includes all of the state consumer protection laws, things about fraudulent and deceptive business practices. The intent was never to put a moratorium on those and those will certainly apply to AI, as long as you don’t specifically target AI with those bills, the states will be free to do that.
1:38:35 Adam Thierer:
And just yesterday, the Wall Street Journal published a story about Europe’s very small share of the global tech marketplace, and had this astonishing statistic: “European businesses spend 40% of their IT budgets on complying with regulations, and two thirds of European businesses don’t understand their obligations under the EU AI act.” How do you do business in that environment?
1:41:25 Amba Kak:
I actually think that this industry, in particular the AI industry, derives its power from structural forms of obscurity. The fact that these systems are very complex, and they’re made to, they have this sort of black box quality, and that’s where they derive their power. And so in that context, even as I as I believe that transparency is the bare minimum, it is the necessary first step, and it’s really heartening to see that that is where states have really taken aim.
1:42:40 Amba Kak:
I think we need disclosures across the AI supply chain, not just the deployers, but also the upstream developers, the big tech companies that are making this AI and aren’t telling us what data they’re using to build these systems. So they need to be telling us how the sausage is is made or put together, so to speak. It’s smaller developers, it’s small businesses down the line that also need this transparency from AI companies. We’ve seen big tech AI lobbyists argue that, they’ve sort of kicked the can down the road. When harms happen, it’s the responsibility of these smaller firms, but the smaller firms don’t have the information they need to be able to know why these harms are happening and to remedy them when they are. Finally, I want to make a quick point, because we talked about Stargate and infrastructure. We also need transparency on the infrastructure side of things. You know, AI data centers are proliferating, but they’re failing to report basic information on resource consumption, on power usage, on water consumption. And state lawmakers are really speaking up to say that. You know, we need just in time — We need transparency in this domain. We can’t let companies use the claim of AI innovation to run wild.
1:48:15 Amba Kak:
We want best in class AI, we need to have best in class research infrastructure to begin with. And so on the one hand, we’re talking about AI curing cancer. On the other hand, we’re seeing NIH subject to $4 billion cuts, when, in fact, the main focus of NIH is cancer research. So I do think that for the US to lead in AI, we need a strong foundation, and I’m worried that we’re sort of walking back some of the progress we’ve made there.
1:58:40 Sean Heather:
Interestingly enough, when you listen to civil society groups in Europe, their biggest criticism is actually the role of AI being used by the government. In Europe, there actually are the ability to use AI technologies by European governments for surveillance purposes, and these kinds of things that are not being disciplined by the EU AI act. And so I’ve heard lots of criticisms by the civil society groups that essentially, some AI technologies are going to be okay for the government to use, but not okay for commercial use. That kind of disparity also, I think, creates problems and challenges, but those are some of the things that we see also out of civil society groups in Europe.
2:11:45 Marc Bhargava:
The technology is changing very, very quickly, and it’s hard to keep up with. So I think creating these guidelines are what’s most important. And what I mean by that, for example, is a transparency guideline, so that could hit on, What are the data sources? How do we train the model? How do we test the model? Also having red teams come and after there’s an output, an AI, a red team comes and tries to make it do something bad. So this is sort of a human testing of it. So putting in place these processes and these guidelines are the way to kind of have a framework on the national level, rather than try to get too into the weeds, because the technology is changing every three to six months.
2:12:30 Rep. Tom Kean (R-NJ):
Given your background as a startup founder and venture capitalist, can you explain what the practical impacts of patchwork of state regulations have on innovation?
Marc Bhargava:
Absolutely, I, myself, am a founder. I started a company in the digital asset space, which was then later acquired by Coinbase. And there, you know, we had to operate across different states. And so it was very hard for us to compete with a larger company because we didn’t have the lawyers or the compliance teams to be able to look from a state by state basis. It was very hard to actually compete in that sense. And so having a single national framework that’s very clear that has input from startups is a much better approach, just in general, to innovation, not necessarily only specific to AI.
2:17:55 Amba Kak:
We have spent a lot of time at this hearing talking about European law and what it is and what it isn’t, and maybe we all agree that it is imperfect. But respectfully, I would really like to ask, what does that have to do with state laws? Because I would argue that they have nothing in common. Where we’re actually seeing states step up to the plate and act are on weeding out bad apples, putting in place safeguards in the most high impact settings, including criminal justice, including immigration, including education, where stakes are really high, and they’re making sure that, you know, we’re not having AI systems that have basic inaccuracies proliferating, particularly when the impacts of these errors are on people’s basic civil liberties. So I agree with you, I think that states have stepped up to the plate, they have responded to their constituents, and this proposal would really wipe away a lot of that progress without anything in its place.
2:19:20 Amba Kak:
The FTC crackdown recently on Rite Aid’s use of facial recognition technology that was routinely misidentifying people in grocery stores and subjecting them to unwarranted scrutiny from law enforcement agencies.
2:28:10 Adam Thierer:
Exactly how we define developer, deployer, integrator, consequential decision, all of these things, or even the term artificial intelligence, which is being defined differently in different state bills. If we can’t even define the basic term we’re here today to discuss at the state level, then that’s a patchwork that’s going to create huge problems for small businesses.
Music
Tired of Being Lied To by David Ippolito
