In a decisive move early on July 1, the U.S. Senate voted 99–1 to pass an amended version of the One Big Beautiful Bill (OBBBA), stripping out a controversial provision that would have blocked state-level regulation of artificial intelligence. The amendment, introduced by Sen. Marsha Blackburn (R-TN), eliminated a proposed 10-year moratorium that had tied state compliance to access to federal funds.
Controversial Provision Struck from Budget Package
OBBBA (H.R. 1), a sweeping budget reconciliation bill, originally included language that would have barred states from enforcing or enacting AI-related laws for 10 years (Section 43201)—potentially invalidating legislation already in place in states such as California and Colorado. The provision drew strong support from major tech companies, including OpenAI and Google, who warned that a patchwork of state laws could create legal uncertainty and stifle national innovation.
However, bipartisan opposition to the moratorium intensified. Facing resistance within the Republican Party, lawmakers attempted to negotiate a scaled-down compromise, proposing a five-year moratorium with exemptions for laws protecting children and cultural industries. Those talks collapsed, prompting Blackburn to submit an amendment eliminating the moratorium entirely. Only Sen. Thom Tillis (R-NC) opposed the final vote.
Lawmakers Speak Out
Blackburn, once a key negotiator in compromise talks, defended her decision to oppose the moratorium outright.
“This provision could allow Big Tech to continue to exploit kids, creators, and conservatives,” she said. “Until Congress passes federally preemptive legislation … we can’t block states from making laws that protect their citizens.”
Sen. Maria Cantwell (D-WA), who led the Democratic opposition, also praised the result:
“The Senate came together tonight to say that we can’t just run over good state consumer protection laws … States can fight robocalls, deepfakes, and provide safe autonomous vehicle laws.”
Reactions from States, Advocates, and Industry
The Senate’s decision prompted swift responses from governors, advocacy groups, and industry leaders.
Arkansas Gov. Sarah Huckabee Sanders called the vote “a monumental win for state leaders,” emphasizing states’ role in protecting children from unregulated AI tools. Sanders had led a coalition of 17 Republican governors urging Congress to restore state regulatory authority.
Consumer advocacy groups echoed that sentiment. Common Sense Media said the Senate “did the right thing today,” while Max Tegmark of the Future of Life Institute called the vote “a blow to [the] Big Tech power grab,” insisting that federal preemption without safety guardrails is unacceptable.
Industry leaders expressed concern about regulatory fragmentation. OpenAI’s Chris Lehane warned that inconsistent state laws could create “a maze of conflicting rules” without meaningfully improving safety. Other firms, including Nvidia and Google, signalled they would now focus on supporting a cohesive federal AI framework.
States Move Ahead, Federal Efforts Continue
The Senate’s rejection of the moratorium reaffirms the U.S. federal–state balance in AI governance. Legislation such as California’s generative-AI disclosure rule (AB 3030) and Colorado’s high-risk AI law (SB 205) can now proceed without the threat of lost federal funds. Other states, including Illinois, Utah, and Texas, are expected to follow suit.
At the federal level, momentum continues. The Kids Online Safety Act (KOSA) is advancing in Congress, and agencies such as the National Institute of Standards and Technology (NIST) are developing trust and safety frameworks for AI deployment. Together, these efforts reflect a dual-track approach: state innovation on one side, and federal standard-setting on the other.
Looking Ahead
With the moratorium removed, the Senate passed OBBBA late on July 1. The House approved the final version on July 3—just in time for the July 4 deadline. Meanwhile, Sen. Ted Cruz (R-TX) and allies are reportedly preparing standalone legislation to reintroduce a more limited version of federal preemption, potentially tied to infrastructure funding.
Industry groups are also shifting strategy. In light of the Senate’s vote, many are doubling down on calls for a unified federal framework, supporting legislative efforts like KOSA and the adoption of NIST’s AI trust standards to bring national clarity.
Conclusion
The Senate’s decision to drop the AI moratorium marks a turning point in U.S. AI regulation. Lawmakers have preserved states’ authority to act, opening the door for localized innovation and stronger consumer protections. At the same time, the push for a cohesive federal framework continues—setting the stage for a complex but critical debate on how best to govern AI in the years ahead.
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