In a dramatic 99–1 vote, the U.S. Senate stripped a federal AI provision from its reconciliation spending bill. This effectively collapsed a proposed five-year (previously ten-year) moratorium on state-level AI legislation. The provision’s demise came fast, even after a revised compromise crafted by Senators Marsha Blackburn and Ted Cruz. But this wasn’t just a failed policy play. It was a moment of clarity.

The federal government tried to halt the states. And the system refused.

A Push Too Urgent to Stay Hidden

The problem is that the moratorium was never designed to withstand open debate. That’s why it wasn’t introduced as a standalone bill. It was buried inside a must-pass spending package, which shielded it by the procedural urgency of reconciliation. The hope? That it could bypass resistance and slip through under pressure.

But thanks to the Byrd Rule, the moratorium was flagged, challenged, and ultimately dismantled in near-unanimous fashion. Even Senator Blackburn, who had helped negotiate the last-minute compromise, publicly walked away from it less than 24 hours later.

The whole episode reiterated the point that the government isn’t ready to legislate on emerging technology like AI. Moreover, it triggered bipartisan backlash. Republican governors. Democratic senators. Consumer advocacy groups. Civil rights coalitions. Privacy experts. All recognized the moratorium for what it was –

But you know who has passed AI laws successfully? Our states.

The Case Against Federal Preemption in AI Regulation

The failure brings forth an institutional reality that can no longer be ignored. AI systems iterate constantly, and their capabilities and social touchpoints are too fast-moving for federal preemption. States are already moving they’re crafting laws on AI transparency, algorithmic bias, biometric protections, and more. Some of those laws will be flawed. Others might go too far. But together, they represent something critical: the first draft of America’s AI governance future.

We will see federal AI regulation. But not yet. And not by skipping over the messiness of state-level experimentation. The path forward runs through it.

What This Means for Businesses

Many in the industry supported the moratorium out of fear of fragmentation, compliance headaches, and a patchwork of conflicting rules. But the alternative isn’t clarity. It’s a regulatory vacuum. And in a vacuum, risks multiply:

• No baseline for responsible development: Without standards, teams are guessing at what’s ethical, legal, or safe.
• Increased litigation exposure: Ambiguity invites lawsuits, especially around bias, privacy, and algorithmic harm.
• Reputation risk: Inaction today could mean scandal tomorrow, as AI decisions go unmonitored or misunderstood.
• Loss of consumer trust: People want transparency and recourse. A vacuum delivers neither.
• Falling behind global norms: The EU, China, and others are moving fast. Companies waiting for U.S. federal clarity risk missing the international compliance curve.

Governance Starts Where Impact Happens

The Senate vote didn’t kill AI regulation. It confirmed where it will begin. States are responding where Congress has stalled. And if this week’s vote is any signal, they have the support to keep doing so. Federal AI legislation will come, but only after the states have made the first draft, surfaced the first consequences, and helped shape the first wave of real accountability.

For now, the smart move for businesses isn’t to wait for a single national law.