U.S. Budget: Artificial Intelligence and University Endowments

The U.S. budget reconciliation bill is moving through the U.S. Congress.  One part getting attention concerns artificial intelligence.  First, subsections (a) and (b) provide for funding to upgrade the federal information technology system with artificial intelligence.  Importantly, the funding should provide better cybersecurity protection for federal information technology systems.  Second, subsection (c) seems to provide a ban on enforcement of state or local regulation of artificial intelligence.  A draft of the proposed section is below.

PART 2—ARTIFICIAL INTELLIGENCE AND INFORMATION TECHNOLOGY MODERNIZATION

Section 43201. Artificial intelligence and information technology modernization initiative.

Subsection (a) would appropriate $500,000,000 to the Department of Commerce for fiscal year 2025, to remain available through September 30, 2035, for the purpose of modernizing and securing federal information technology systems through the deployment of commercial artificial intelligence, automation technologies, and the replacement of antiquated business systems.

Subsection (b) states that the Secretary of Commerce shall use these funds to support the replacement and modernization of legacy business systems with state-of-the-art commercial artificial intelligence systems and automated decision systems, the adoption of artificial intelligence models that increase operational efficiency and service delivery, and improve the cybersecurity posture of Federal information technology systems through modernized architecture, automated threat detection, and integrated artificial intelligence solutions.

Subsection (c) states that no state or political subdivision may enforce any law or regulation regulating artificial intelligence models, artificial intelligence systems, or automated decision systems during the 10-year period beginning on the date of the enactment of this Act.

Subsection (d) provides definitions for key terms used in the Act, including “artificial intelligence”, “artificial intelligence model”, “artificial intelligence system”, and “automated decision system”.

The House Ways and Means Committee has a list of other parts of the proposed budget bill of interest, including taxation of university endowments:

• Holds woke, elite universities that operate more like major corporations and other tax-exempt entities accountable, ensuring they can no longer abuse generous benefits provided through the tax code.
• Increases the university endowment tax and subjects the largest endowments to the corporate tax rate.
• Increases tax on massive non-profits that resemble hedge funds and pay their employees huge salaries.

The National Conference of State Legislatures states: “[This a]dds to the current 1.4% excise tax on net investment income from private universities endowments that are greater than $500,000 per student. The new tax rate is based on a tiered, student-adjusted system. Universities with per-student endowments above $2,000,000 are taxed at a 21% rate, between $1,250,000 and $1,999,999 at 14%, and between $750,000 and $1,249,999 at 7%.”