AI laws could stifle innovation, but broad preemption would be ‘reckless,’ experts tell House subcommittee

During a congressional hearing Thursday focused on the future of artificial intelligence policy, experts testified that while state regulations could stifle innovation, broad federal preemption of state laws would be “reckless.”

The hearing, which was titled, “AI at a Crossroads: A Nationwide Strategy or Californication?”, was held by the House Judiciary Subcommittee on Courts, Intellectual Property, Artificial Intelligence, and the Internet. It followed the defeat of a 10-year ban on states enforcing their AI laws that was shopped in the Senate earlier this year. The proposed ban, led by Republican Sen. Ted Cruz, of Texas, was met with stiff opposition from a large number of state lawmakers and state attorneys general, and eventually lost all support in the Senate before it was killed by a vote of 99-1.

However, a potential preemption of state AI laws and policies has since found new life in the federal government’s AI Action Plan, a 28-page document released by the Trump White House at the end of July that proposes to revoke federal funds for states with AI rules that are deemed “burdensome” or “unduly restrictive.”

The subcommittee, chaired by Rep. Darrell Issa, a California Republican, and led by Democratic Ranking Member Rep. Henry “Hank” Johnson of Georgia’s 4th congressional district, heard the testimony of four expert witnesses, who all — to some varying degree — agreed on the need for a federal framework for AI regulation.

The experts all also agreed on the importance of balancing AI innovation with responsible development, and noted that some form of oversight is necessary to prevent potential harm, especially to vulnerable populations like children. There have been several instances of AI chatbots being involved in such harm over the last few years.

The experts offered differing perspectives on federal frameworks and the role of states. Kevin Frazier, an AI innovation and law fellow at the University of Texas School of Law, told the subcommittee he was against state AI laws, and cited concerns about their impact on interstate commerce, as well as concerns about retaining constitutional principles like equal sovereignty, which he said grants states the power to govern inside their borders, but not beyond.

He pointed to aggressive AI laws created by states like California, which has the world’s fourth largest economy. He said California’s laws have affected other states.

“Our founders aspired for every American to exercise meaningful control over their daily lives. Extraterritorial regulation of AI jeopardizes these and other features of individual agency,” he said. “The nature of AI development means that if labs are compelled to comply with one state’s regulations for model training, those requirements will be imposed on the rest of the country, rendering us all less likely to realize the benefits of AI advances. Americans may be able to move as freely as they’d like, but they would still find themselves using AI tailored by state legislators over which they have no control.”

Like Frazier, Adam Thierer, a senior technology and innovation fellow at the conservative Washington think tank R Street Institute, also testified on the need for a coordinated, national approach to AI regulation.

Thierer said state regulations could hinder innovation, create compliance challenges for companies of all sizes and disproportionately burden small businesses. He said federal lawmakers can avoid this by looking to laws that have successfully preempted state regulations, such as the Internet Tax Freedom Act, a 1998 law that prohibited states from implementing new taxes on internet access or e-commerce transactions for a three-year period, while also, he claimed, giving rise to digital innovation.

“Now is the time for Congress to work the same magic for AI by creating a national framework to prevent a patchwork of state mandates from undermining AI innovation,” Thierer said, noting several comments made by governors recently, and expressing frustration about the myriad AI laws.

“Congress could again try to implement a moratorium, or it could formally preempt specific state and local regulatory enactments that impose an undue burden on interstate algorithmic commerce,” Thierer said. “If Congress chooses the latter option, federal lawmakers should first preempt state regulations of AI frontier models, because the costs associated with such regulations would outweigh any local benefits. Such rules would create spillovers, and undermine development of the system the nation needs to compete globally.”

Not all the experts were so concerned about hampering innovation and economic prosperity. Neil Richards, a professor at the Washington University School of Law in St. Louis, Missouri, said state AI laws have so far been mainly geared toward consumer protection, and noted that “federal preemption of state laws touching AI would be reckless and expose consumers to great risk of harm.”

“At a time when we can be sure that harms will result, but we cannot be sure how, depriving states of the ability to adapt to and try to mitigate these harms would be to disregard a clear and obvious risk, and that is the legal definition of recklessness,” said Richards, co-director for the Cordell Institute for Policy in Medicine & Law, before turning to address the claim that state regulations stifle innovation.

“Law creates and enables innovation by stabilizing the marketplace, it sets the ground rules for fair and robust competition, making the market safe and sustainable for consumers, contrary to its libertarian origin myth,” he continued. “From government defense contracts to intellectual property laws and from securities laws to federal and state prohibitions on unfair and deceptive trade practices, law has always played a role in preventing scammers and thieves and in shaping corporate business practices so that they benefit society as a whole.

“It is the presence of regulation, including state regulation, that has led to America being a leader in digital technologies and services. While we can certainly, and I’m sure we will this morning, debate how much regulation and what kind is appropriate — having no new regulations at a time of rapid change would be a disaster.”