State Regulation of AI Deserves the Boot

A s night follows day, there will always be politicians who try to regulate any emerging technology — focused only on potential downsides and blind to how regulation could stifle the new innovation’s potential.

Artificial intelligence is just the latest technological development to fall victim to politicians’ insatiable appetite to regulate. But what’s different this time is the volume of policymaking that has been occurring at state and local levels. Last year, more than 1,200 AI-related bills were introduced across all 50 states, and 145 were enacted. If the trend continues, AI’s potential could be strangled, leaving the United States with a European-style, slow-growth economy.

The Trump administration, under the leadership of Assistant Secretary of Commerce Arielle Roth and the National Telecommunications and Information Administration (NTIA), will soon be publishing an assessment of economically damaging state-level AI laws. As part of this examination, the administration should target state and local measures that cover AI systems, pricing analytics tools, cloud infrastructure, and digital platforms. All of them should be evaluated through the lens of federal jurisdictional authority, given that AI fundamentally operates across state lines.

The administration should encourage trigger-happy state and local jurisdictions to learn from the experience of Democratic Colorado Governor Jared Polis. In May 2024, Polis signed a wide-reaching AI bill into law. The legislation stipulated that AI systems involved in making “consequential decisions” in areas such as housing, employment, and health care would be banned if those decisions inflict discriminatory treatment or result in disparate impact on legally protected classes. The law included penalties of up to $20,000 per violation against an AI developer, deployer, or “other person.”

Polis said he signed the legislation “with reservations” and that he was “concerned about the impact this law may have on an industry that is fueling critical technological advancements across our state.” He was right to be concerned, given that the legislation was riddled with shortcomings, such as requirements that companies disclose proprietary information to competitors.

By June 2025, Polis was even more forthright in his skepticism of non-federal AI measures: “A state-by–state patchwork creates a challenging regulatory environment, and would leave consumers worse off overall,” his office said in a statement: Polis “is supportive of pre-empting state law for several years to give Congress time to figure this out and create a true 50-state solution to smart AI protections for consumers while driving innovation.”

That statement should be plastered on the walls of legislatures in all 50 states.

When states adopt conflicting compliance regimes, disclosure mandates, or outright bans on algorithmic tools, the result is often the fragmentation of interstate commerce — if not the enactment of outright commercial barriers, which puts states in conflict with the U.S. Constitution’s commerce clause. Of course, violations of the commerce clause give Washington the outright authority — indeed, the responsibility — to pursue preemption.

The Colorado legislation was supposed to finally take effect in February 2026, but implementation has now been delayed until June 30 to allow for adjustments. Still, several other measures that threaten America’s global standing in AI have already been enacted.

California and New York have enacted laws banning the use of software and related data tools that national real estate firms utilize to better understand the rental market. Several big cities, such as Seattle and Minneapolis, have passed similar ordinances. While critics claim that such AI technologies drive up rents, they overlook the fact that these tools can also be used to lower rents — all they are doing, after all, is analyzing market trends to estimate the price points where supply and demand intersect. Furthermore, with this particular measure only existing in select states and cities, it creates fragmentation and inefficiency in real estate markets while misdiagnosing the cause of rising real estate prices: a toxic stew of too little supply (caused by too much regulation) and rising insurance costs in some places.

To take another example of innovation-stifling, state-level AI regulation, Illinois has enacted a law that prohibits employers from using AI in a wide range of workplace matters, including recruitment, hiring, and promotion. This law is not only redundant, insofar as it is potentially duplicative of federal antidiscrimination law, but it also adds huge compliance costs — which is especially applicable if compliance depends on knowing users’ precise locations. For instance: If a company is based outside of Illinois but hires someone who works from home in the state, does the measure apply?

AI has the potential to unlock America’s next era of high-octane growth. We already see it emerging as the foundation for industries throughout the nation’s economy, with adoption by companies of all sizes. But AI developers and those using the technologies will be hamstrung if they must comply with an inconsistent and unworkable patchwork of regulations, cutting into their ability to innovate and invest. At the same time, consumers will want to be smart about their personal information and avoid giving AI platforms medical, financial, tax, or other sensitive information, including Social Security, birth certificate, or passport data.

AI and related tools don’t recognize state lines and the geographic limits of local jurisdictions. That reality only underscores the need for federal standards to provide clarity and predictability.

The Trump administration will be doing a great service by shining a light on regressive state-based AI laws. If overzealous states and localities refuse to undo the messes that they’ve made, the administration should be prepared to preempt these measures — and make clear that federal funding could be scaled back in jurisdictions that don’t comply. America’s future prosperity rests on getting this right.