Strikes on PCAOB, State AI Laws Move Ahead
Update from Washington: those bills to abolish the Public Company Accounting Oversight Board and to bar states from adopting their own rules for artificial intelligence for 10 years both made it into the tax-and-spending legislation that House Republicans adopted Thursday night, bringing both measures another step closer to becoming law.
The “big, beautiful bill,” which is mostly about cutting taxes for the rich, cutting Medicaid for the poor, and adding trillions more to the U.S. national debt, passed by exactly one vote in the House last night. It now moves to the Senate, where Republicans and Democrats alike say the legislation will undergo major changes.
The question now is whether either piece of legislation — Section 50002, which abolishes the PCAOB and assigns its duties to the Securities and Exchange Commission; or Section 43201, which imposes a 10-year moratorium on states enforcing their own aws for artificial intelligence — might somehow be sacrificed as part of whatever negotiations take place on the Senate side.
Importantly, Republicans need only 51 votes in the Senate to adopt a final bill, not the usual 60 votes to overcome a filibuster. So at least in theory, Republicans could negotiate among themselves (they have 53 votes, after all) and ignore Democrats entirely. That makes both pieces of legislation more likely to survive, since they both have powerful Republican supporters.
On the other hand, predicting how the Senate will negotiate a piece of legislation is always dicey, and the politics of this specific bill are especially fragile. For example, it’s entirely possible that the Senate will adopt a version of the tax-and-spend bill that House Republicans won’t support. Then Republican leadership would need at least a few Democratic votes anyway, which is when Democrats could exert their influence.
The Senate will start its work on the bill sometime in June.
Speaking of the PCAOB
This legislation to abolish the PCAOB is the most dire threat to the agency since it was first established more than 20 years ago by the Sarbanes-Oxley Act — but we are seeing a fledgling rear-guard action by supporters to save the agency.
Today, for example, PCAOB chair Erica Williams delivered remarks at a meeting of the agency’s emerging issues task force, where she declared herself “deeply troubled” by Republicans’ efforts to kill off the PCAOB and then rattled off a short list of reasons why this is such a bad idea:
The unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted without significant risk to investors at a time when markets are already volatile. Getting an inspections program off the ground alone would take years. It would require hiring hundreds of experienced inspectors and renegotiating agreements around the world, including in China, wasting time and money all while creating significant risk of fraud slipping through the cracks while no one is looking. Not to mention the disruption to enforcement around the world and potential loss of unmatched expertise … at a time when firms are relying on their support to implement new standards.
Williams has a point. Earlier this week SEC chairman Paul Atkins, author of Project 2025’s plans to gut the PCAOB, appeared before Congress and said the SEC has seen a 16 percent reduction in staff since the start of the Trump Administration — empty seats the SEC will need to re-fill somehow, which means more recruiting and hiring expenses and the real possibility that inexperienced newbies will be replacing savvy veterans who took the buyout and ran to the private sector.
Atkins did tell Congress that, yes, his agency could handle the PCAOB workload; but only assuming the SEC gets more money and manpower to do so. That’s what Republicans promise in their bill (more funding), but if you believe every experienced PCAOB audit staffer will simply transfer over to the SEC, I have a Qatari plane to sell you.
Other former PCAOB board members are hitting the news circuit too, trying to drum up support for the agency. Will that be enough to carry the day? I fear not; here’s hoping I’m proven wrong.
Ban on State AI Laws
I’m more optimistic that this idea will die the death it deserves. Democrats oppose it, as do plenty of consumer privacy groups, and privacy against Big Tech is an issue with plenty of support among Republican voters too. Moreover, state officials — both state legislators who might adopt new laws, and state attorneys general who might enforce them — won’t like this encroachment on their power too. There are a lot of political groups that will naturally line up against this bill.
If you’re a fan of obscure Senate rules, also remember that this moratorium violates the Byrd Rule, which says that budget reconciliation bills (which the tax-and-spend bill is) can’t include measures that don’t relate to federal spending. A moratorium on state AI laws does not relate to federal spending. Even several Republican senators aren’t thrilled with the moratorium idea, and several Republicans is all it will take for this moratorium to go into the hereafter.
Plus, think through what this legislation actually proposes. It would forbid laws meant to set standards for AI performance, such as imposing tests for AI systems’ accuracy or fairness — but it would not forbid states from enforcing “generally applicable laws” against AI systems if those laws would also apply to other business operations.
That is, if you develop an AI that discriminates against minorities, a state attorney general could still bring a case against you under state anti-discrimination laws. But the state could not adopt a new law requiring you to test your AI system so that it won’t discriminate in the first place. So companies would be liable for AI-driven harm, but we have to wait for the harm to happen; laws meant to prevent such harm in the first place would be invalid. That doesn’t strike me as a politically popular stance.