U.S. Senator Ted Cruz (R-TX) speaks during a press conference at the U.S. Embassy, in Mexico City, Mexico, August 29, 2025. REUTERS/Eloisa Sanchez/File Photo

By Jody Godoy

(Reuters) - Republican U.S. Senator Ted Cruz introduced a bill on Wednesday that would let artificial intelligence companies apply for exemptions from federal regulation to help them experiment in developing new technology.

Cruz leads the Senate Commerce Committee, which is scheduled to hold a subcommittee hearing on Wednesday about ways Congress can lower regulatory hurdles for the tech industry to give U.S. companies a boost in competing with China.

"A regulatory sandbox is not a free pass. People creating or using AI still have to follow the same laws as everyone else," Cruz said at the hearing.

If passed by Congress, the bill would allow agencies that oversee federal regulations to consider applications from companies to be exempt from regulations for two years at a time, and require companies to outline the potential safety and financial risks and how they would mitigate them.

Leading AI companies including OpenAI, Alphabet's Google and Meta Platforms have called on the Trump administration to lower regulatory barriers for AI development, and the White House's Office of Science and Technology Policy has said it will gather public comment on what regulations pose hurdles to the industry.

Federal regulators oversee rules meant to ensure health data privacy, transportation safety, financial market stability and more.

Consumer rights advocacy group Public Citizen said the proposal "treats Americans as test subjects" and raised concerns about provisions in Cruz's bill that would allow OSTP to override agencies' denial of regulatory waivers.

"The sob stories of AI companies being ‘held back’ by regulation are simply not true and the record company valuations show it," said J.B. Branch, Public Citizen's Big Tech accountability advocate.

Cruz's sandbox bill does not include a ban on state regulation, something that the tech industry has sought and the White House has said is necessary to boost innovation. A bid to put a 10-year moratorium on state regulation in place as part of President Donald Trump's tax-and-spending bill was defeated in the Senate on a 99-1 vote in July.

States have enacted a variety of laws on AI. Several states have criminalized the use of AI to generate sexually explicit images of individuals without their consent. California prohibits unauthorized deepfakes in political advertising and requires healthcare providers to notify patients when they are interacting with an AI and not a human.

Colorado passed a law last year aimed at preventing AI discrimination in employment, housing, banking and other consequential consumer decisions. The tech industry has lobbied for changes to the law, and the state legislature recently pushed forward its implementation to mid-2026.

"These types of very anti-innovation regulations are a huge problem for our industry," OSTP director Michael Kratsios said at the hearing, adding that Congress should revisit the possibility of preempting state laws.

"It's something that my office wants to work very closely with you on," he told Cruz at the hearing.

(Reporting by Jody Godoy in New York; Editing by Franklin Paul, David Gregorio and Nia Williams)