Money or Regulation? Cruz’s AI Clause Puts States in a Bind

A push by Sen. Ted Cruz’s decision to block states from regulating artificial intelligence in exchange for access to federal funds has triggered a rare bipartisan backlash, exposing deep divisions in Congress over how, and who, should control the future of AI governance.

Cruz’s provision, tucked into a broader GOP tax-and-spending bill, would restrict states from regulating AI for a decade if they want a slice of a $500 million federal infrastructure fund. Critics say the move would tie the hands of state lawmakers just as AI is accelerating into uncharted ethical and legal territory. Texas, where a major AI law is set to take effect in 2026, could lose access to the funds under Cruz’s proposal, a concern echoed by state Sen. Angela Paxton and even Cruz’s Republican colleague Sen. John Cornyn, as reported by The Texas Tribune.

The moratorium has united hardline conservatives like Sens. Josh Hawley and Rand Paul with Democrats, including Senate Commerce Committee ranking member Maria Cantwell, who argues the measure could jeopardize even broader broadband funding. Advocacy groups like Americans for Responsible Innovation warn it undermines states’ rights and risks leaving consumers unprotected from potential AI abuses, such as deepfakes and harmful algorithms.

Proponents of the freeze, including tech-aligned groups like the American Edge Project, say a fragmented regulatory landscape would stifle innovation and slow the U.S. in the global race against China. But AI watchdogs counter that innovation cannot be the sole priority. 

“When you prevent any level of government from acting, you’re essentially choosing innovation over safety,” said Mark Beall of the AI Policy Network.

The provision may face an amendment on the Senate floor or be stripped altogether, setting the stage for a showdown as lawmakers weigh federal oversight against state autonomy in the age of AI.