Will State Laws Hurt AI’s Future?

To help you understand the trends surrounding AI and other new technologies and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe.) You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

Insufficient electricity, Nvidia chip shortages and tech advances hitting roadblocks are some of the potential factors that could slow down AI development. Now there’s a bigger worry: The states and how they regulate AI.

There have been hundreds of AI bills introduced in the states this year alone. These include transparency rules, consumer protections, inspections of top AI models for compliance, and efforts to promote AI adoption. Colorado was a first-mover, passing a comprehensive AI law last year that covers high-risk AI systems, discrimination and transparency.

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That’s prompted an unusual idea on Capitol Hill: Block states from regulating AI for the next decade. A recent draft of the emerging Republican tax and spending bill includes the decade-long restriction, with an expansive definition of AI and few exceptions. One of the main carve-outs is allowing states to pass laws that promote AI use and adoption.

The proposal sets the stage for a fierce debate this year and beyond, even though that specific proposal is not likely to make it into law anytime soon. A moratorium would prevent states from enacting or enforcing AI-specific bills related to chatbots, social media, deepfakes, medical software and much more. Advocates for the pause say AI harms can be addressed with other state laws related to unfair or deceptive practices, consumer privacy, discrimination and more.

Many Republicans, technologists and analysts argue the U.S is at risk of choking innovation in the nascent field of generative AI. “The United States is hurtling toward a fragmented web of conflicting rules that create uncertainty, raise costs, and stifle innovation,” Hodan Omaar, senior policy manager at the Information Technology and Innovation Foundation, a Washington, D.C.-based think tank, said in a statement. Even Colorado Governor Jared Polis, a Democrat, now favors a federal moratorium, saying the state’s law, which he signed, went too far.

Preempting state laws is nothing new for Congress and is a familiar proposal in tech policy. But doing so without a federal framework in place is a novel idea in recent times and speaks to how quickly AI is being adopted.

A moratorium provides time to write federal rules, but it’s not clear when that would happen. “In the absence of federal protections, the proposal to block state and local action on AI for the next 10 years places the development, deployment, and use of AI into a lawless and unaccountable zone,” says Travis Hall, director for state engagement at the Center for Democracy & Technology (CDT), a Washington, D.C.-based nonprofit focused on digital rights.

Some analysts point to the 1990s when federal laws preempted state internet regulations to encourage growth of the emerging technology.

Bipartisan agreement is likely needed to halt the patchwork of state laws, but it’s hard to see the two parties compromising anytime soon. There’s no shortage of federal AI bills, including legislation calling for new studies, standards for disclosure and more R&D funding, with more bills on the way.

That means that tech companies, and their investors, are facing a tangled web of state regulations and compliance, which could drag on for years.

A similar state of limbo happened with state privacy laws. California’s sweeping privacy law prompted a big push for federal privacy rules that would preempt the rising patchwork of state laws. California’s law has been in effect for five years and there’s still no federal legislation in sight.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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