AI is Facing Death by 50 State Regulatory Cuts

A crisis is looming over artificial intelligence, but it’s not what you think.

While politicians fret about AI’s impact on jobs and deepfake videos, state laws are strangling the small businesses trying to harness this technology for Americans’ benefit. They need uniform nationwide standards, but instead, they face a costly patchwork of conflicting and innovation-killing rules.

This doesn’t just prevent the creation of AI that serves families and job creators. It directly benefits the biggest tech companies at the expense of their small competitors, while threatening American leadership in a field where the U.S. has to win. Only D.C. can end this crisis before it gets worse.

Thankfully, President Trump just took the first big step. On December 11th, he signed an executive order that seeks to block state laws that stifle AI. Under this policy, the administration can now sue states that have gone too far. But even more important, the President pledged to work with Congress to develop national AI standards as soon as possible. While Congress has failed to make progress, most recently abandoning reforms in its defense spending bill this month, the President’s executive order adds a new sense of urgency to pass the strongest policy. Congress should aim to pass a law early in 2026.

The sooner, the better, because states have passed over 160 AI laws to date, with more on the way. Colorado has passed a law that would require companies developing and deploying AI to file “high risk reports” — a heavy-handed measure that lawmakers admit will hurt small businesses. A bill is sitting on New York Gov. Kathy Hochul’s desk that would apply a massive regulatory regime to AI companies in the name of safety. California Gov. Gavin Newsom just signed a similar bill into law, along with 17 others.

The supporters of these laws say they reflect states’ role as laboratories of democracy. AI’s detractors say that state protections are necessary to keep such a dangerous technology in check. Yet so many state laws make it significantly harder for smaller AI companies to compete and introduce products that improve Americans’ lives.

Take Phil Salesses, who co-founded MoveAI. The company uses AI to help people easily find and hire services when switching apartments or homes. It works across state lines, so Phil has seen how different state laws “make our nationwide operation harder.” He’s forced to spend money on state-by-state compliance — money that would be better spent helping the business meet more movers’ needs. He says he needs “straightforward, uniform policies that allow small businesses like ours to compete nationwide.”

Or take Aidan Chau, who founded a company called Maple that develops AI phone answering services for restaurants. The tool frees workers to focus on cooking and serving customers, leading to stronger restaurants that create more jobs. He says that New York’s pending law would give him less access to the large learning models the company needs. If it becomes law, startups like his may move to another state for their businesses’ survival. But what if that new state tries the same trick down the line?

Thousands of entrepreneurs and start-up founders face similar concerns, but these are also early days. The regulatory burden is set to grow worse, with most states considering multiple proposals. Next year alone, over a dozen states may pass vague algorithm anti-discrimination laws, each of which will be interpreted and applied differently.

Good luck to small AI businesses trying to follow so many different rules. Their compliance budgets will skyrocket, taking precious money from innovation and causing many to fail in time. Meanwhile, the big tech companies that Americans trust least will cement their dominance. They’re the only ones with budgets big enough to survive this death by 50 state regulatory cuts.

A recipe for American AI leadership, this is not. If Congress doesn’t pass national standards, countries like China could gain an unbeatable advantage. But history shows a better path. The U.S. led the internet revolution in large part because federal lawmakers blocked state action in the 1990s. The result has been massive innovation and economic growth, creating trillions of dollars in wealth and lifting every American’s standard of living. Artificial intelligence could be an even bigger boon, defying critics’ predictions about economic and social collapse, while extending America’s global lead.

But that surely won’t happen if places like Albany, Sacramento, and Denver strangle AI with their tribal agendas. President Trump has taken the first step. Now it’s up to Congress to create the nationwide standards that will unleash AI’s potential — benefitting families and job creators while firmly keeping the U.S. in the lead.

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Chris Koopman is CEO of the Abundance Institute.