Trump tax bill forces states to choose between AI rules and $42B in broadband

The Trump administration’s proposed tax bill includes a provision that would ban states from enforcing AI regulations for 10 years, threatening to cut federal broadband funding for non-compliant states. This creates a stark choice for states between protecting residents from AI risks and securing billions in critical internet infrastructure funding, potentially leaving the country in a “dangerous regulatory vacuum” while federal AI policy remains undefined.

What you should know: The Senate rule ties state AI regulation enforcement to federal broadband funding through the Broadband Equity, Access, and Deployment (BEAD) program, a $42 billion federal initiative that helps states build high-speed internet infrastructure.

• States would lose access to $42 billion in existing BEAD funding plus $500 million in new funding if they enforce their own AI laws.
• Already-passed state AI legislation would remain on the books but become effectively useless.
• The ban’s vague language could also block state oversight of non-AI automation like insurance algorithms and autonomous vehicle systems.

States caught in the crossfire: Several states have already enacted or are considering AI legislation that would be impacted.

• New York recently passed the RAISE Act, requiring larger AI companies to publish safety evaluations and disclose incidents.
• “States like New York, Texas, and Utah would all have to choose between protecting their residents against faulty AI and billions in funding to help expand broadband access across their state,” said Jonathan Walter, senior policy adviser at The Leadership Conference’s Center for Civil Rights and Technology.

The regulatory vacuum problem: Federal AI policy remains unclear while the administration dismantles existing safety measures.

• The Trump administration is due to release its AI policy on July 22, but has already cut AI safety initiatives and funding.
• “The main issue here is that there are already real, concrete harms from AI, and this legislation is going to take the brakes away from states without replacing it with anything at all,” said Chas Ballew, CEO of AI agent provider Conveyor and former Pentagon regulatory attorney.
• AI systems in HR, hiring, and financial applications have demonstrated bias against marginalized groups.

Why federal-only regulation is problematic: Experts argue states need flexibility to address AI within their existing legal frameworks.

• “The differences between states with respect to AI regulation reflect the different approaches states have to the underlying issues, like employment law, consumer protection laws, privacy laws, and civil rights,” Ballew explained.
• A “diversity of regulatory schemes” promotes accountability since state officials are “closest to the people affected by these laws.”

Current status: The bill passed the House with the moratorium included, despite opposition from some Republican representatives who prefer state-level governance.

• The Senate parliamentarian has asked Republicans to rewrite the moratorium language to clarify its impact on existing broadband funding.
• If the moratorium passes as written, it could trigger reallocation of the entire $42.45 billion BEAD program under new AI restrictions.

The broader impact: Losing BEAD funding would significantly harm internet access expansion efforts across affected states.

• “This will likely mean fewer people will end up getting access to high-quality, affordable broadband,” Walter concluded.
• The provision creates a “backdoor to apply new AI requirements to the entire $42.45 billion program, not just the new $500 million.”