State AI Regulation Ban Dropped From Federal Budget Bill

Last month, I wrote about the House’s proposed state AI regulation ban in their draft of the budget reconciliation bill. The ban, designed to prohibit states from regulating AI for ten years, failed to make the final cut of the bill. This came after several rounds of negotiations sought to make the ban more palatable to opponents by reducing the time frame and limiting its scope. Ultimately, these revisions did little to win support for the ban, with the Senate removing it in a vote of 99-1. A recent memo from Goodwin discusses what the ban’s failure means for the bigger picture of AI regulation:

“The episode reflects a larger unresolved debate: how to reconcile the desire for federal consistency with the need for agile, local responses to emerging AI harms. For now, businesses should prepare to implement and comply with a wave of new state AI laws, including, most recently, the Texas Responsible AI Governance Act (TRAIGA), which was signed into law by Texas Governor Greg Abbott on June 22, 2025, and will come into effect on January 1 next year.”

For now, federal policy does not preempt state AI regulation. This allows for experimentation at the state level as jurisdictions compete to find policies that mitigate risks without stifling development. For companies, the compliance patchwork remains a serious challenge. The memo notes that over 1,000 regulatory bills are working their way through state houses around the country. Many of those will be culled in the legislative process, but we will certainly see some become law. These laws take a variety of approaches, from large cross-sector frameworks to narrowly tailored regulations. Compliance teams must remain vigilant and prepare to tackle the unique challenges posed by the regulatory patchwork.