Election preview: The GOP ticket

Topline

• Election landscape tilts in favor of Trump … for now

• Trump officially picks JD, a VC alum, as VP

• States step in on AI liability policy

The Landscape

Six days ago former President Trump survived an assassination attempt. It was a jarring reminder to the nation of the fragility of so much of what we take for granted on a personal and human level, as well as on a systemic level. One man lost his life, the former president was struck by a bullet, and others were injured. This country has been marred by political violence before, but it has been the aberration, not the norm. A hallmark of our country has been the respect for political discourse and disagreement. We hope the violence of this past weekend remains an isolated incident.

Meanwhile, the political landscape has shifted dramatically in a short time. 

• President Biden’s poor debate performance weakened Democratic electoral prospects across the board, causing his caucus—from Democrats running in tough races to party leadership—to push him to withdraw his candidacy.  

• Former President Trump and the Republicans seem more united than ever and have gained momentum both nationally and in key swing states.

• On congressional front: The Senate is likely to shift Republican based on the senators up for  reelection this cycle, with many vulnerable Dems in tough races. The House is still up in the air.

• Overall: We have ~3 months to the election. That is a lifetime in politics. Republicans have momentum, but this is not a foregone conclusion.  

Trump officially picks JD, a VC alum, as VP

Donald Trump chose JD Vance, the 39-year old junior senator from Ohio, as his running-mate. Vance is a relative newcomer on the political stage, first elected in 2022. Vance pivoted to the right during his campaign, evolving from a staunch Trump critic to the former president’s second in command. His shift away from the moderate wing of the Republican caucus also brought him into alignment with a handful of populist ideals also cherished by some on the far left.

Here’s where Vance stands on key issues related to the private-market ecosystem:

• Venture capital: Vance was a corporate lawyer and worked in venture capital, where he focused on supporting startups in underserved cities. While Vance is aware of issues impacting private markets, they have not been a priority during his short tenure in Congress. He criticized the SVB business model and sweetheart VC perks after the bank’s collapse and has routinely criticized ESG investing strategies.

• Tax: Vance has voiced his support for extending expiring pro-business Tax Cuts and Jobs Act provisions, as well as restoring full R&D expensing. However, he has broken with traditional Republican orthodoxy by signaling anti-corporate sentiments in certain tax policies. His idiosyncratic perspectives will likely influence congressional debates related to tax policy and ways to pay for it. The innovation ecosystem should not assume key tax provisions—such as QSBS and carried interest—will be off the table. 

• Crypto: Vance is pro-crypto, and has reportedly been working on legislation to create a crypto regulatory framework that is more industry friendly than the bipartisan bill passed in the House. Vance has been critical of the SEC’s approach to crypto regulation and opposes the creation of a central bank digital currency. 

• Big Tech: Vance has been critical of big tech, largely on content moderation and has pushed for removing the liability shield provided by Section 230.

• Antitrust: Again breaking with traditional Republicans, Vance has praised FTC Chair Lina Khan in her posture against corporate consolidation and  merger practices. 

Carta Virtual Event: How the 2024 Election Could Shape Private Market Policy

Policy is infrastructure. From tax reform to private market regulation, the upcoming presidential and congressional elections will influence private market policy outcomes that impact how funds and small businesses operate. Carta’s Policy team and policy leaders will preview how the elections could shape key issues.

The discussion will cover:

• Key policy areas to watch in 2025, including tax reform and capital market regulation

• How funds and small businesses can best navigate the shifting political and policy landscape

• How Carta and other private-market leaders are engaging to drive the policy debate

States step in on AI liability policy

While the federal government discusses artificial intelligence (AI) policy, the states have begun to step in, particularly on increasing AI safety through increased liability for developers of AI.

California drives the debate with SB 1047: On July 2, the California State Assembly Judiciary Committee passed SB 1047 (the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act), following its passage by a bipartisan vote in the California State Senate on May 21. The bill mandates specific safety testing for AI models that cost more than $100 million in computing power to train and that use a specific, high level of computing power. If they fail to do so, they will be held liable if their AI system leads to a “ mass casualty event” or more than $500 million in damages in a single incident or set of closely linked incidents. As of July 2024, there are no AI models that exceed the threshold for required safety training. The bill also creates whistleblower protections for employees of frontier AI laboratories and establishes an advisory council to support safe and secure open-source AI.

AI researchers and practitioners agree that AI poses risk—but the extent of the risk remains a subject of debate. While some cite catastrophic potential risks, others in the industry argue that the large-scale risks are blown out of proportion and are instead concerned that over-indexing protections to hedge against catastrophic risks will negatively impact innovation.

The question: Who owns the liability for the risk—developers or end-users?

While risk-mitigation policies have faltered at the federal level, there is increasing consensus at the state level that liability for harm should be on those who develop AI systems. While industry fiercely pushes against SB 1047, the American public seems to agree with leading AI safety scientists: A September 2023 poll found that 73% of voters believe AI companies should be held liable for harms from technology they create compared to just 11% that believe they should not.

This policy, if adopted, may not only have direct implications on who is immediately liable, but potentially affect how these systems would be developed going forward given the liability risk.

The political landscape: The CA bill is opposed by venture capital firms and larger tech companies, including Meta, who say the regulations take aim at the companies who develop AI and instead should be focused on those who use and exploit the AI systems for harm. Meta’s chief AI scientist Yann LeCun has argued that SB 1047 will “ destroy California’s fantastic history of technological innovation” and ultimately discourage companies from developing large AI systems and from keeping their technology open-source, which would stifle the efforts of small startups and open source developers. 

What’s next: The bill will be up for a final vote in August. If it passes, it still remains unclear if Governor Gavin Newsom will sign the bill into law as he has not yet provided any public feedback on the bill.

Looking at the larger picture, states stepping in to build their own liability regimes for AI will eventually lead to a patchwork of regulation that will become increasingly complex and untenable. The continued development of liability regimes at the state level will result in further regulatory fragmentation, which will lead to vastly increased regulatory complexity and costs for AI companies active throughout the United States.

House Financial Services Committee releases bipartisan AI working group staff report

The House Financial Services Committee’s (HFSC) bipartisan Working Group on Artificial Intelligence released a staff report on AI applications in financial services. Recurring topics throughout the roundtable discussions include concerns with AI leading to bias and discrimination and the importance of ensuring AI systems comply with cybersecurity and privacy safeguards. There was also a focus on the positive use cases of AI in the financial services sector: machine learning has been able to greatly increase data analysis capabilities, allowed for quicker processing of mortgage and insurance policies, and has allowed for faster detection of fraud. 

What’s next: The House Financial Services Committee is holding a hearing next week to discuss the findings from the report. While federal legislation on AI is unlikely to move before the election, stakeholders are laying the groundwork for policy to protect consumers, while allowing for innovative solutions to persistent problems in the financial sector.

Watch the new edition of Policy Live

News to know

• Battle over shareholder pacts strains Delaware’s business courts (WSJ)

• Judge in SolarWinds case rejects SEC oversight of cybersecurity controls (Washington Post)

• Major IT outage grounds flights, hits banks and businesses worldwide (WSJ)

• Spot ether ETFs likely to begin trading July 23, industry sources say (Reuters)

• Texas court to rehear ESG 401(k) rule challenge post-Chevron (Bloomberg)

Upcoming events

• July 23 - House Financial Services Committee hearing: ​​ AI Innovation Explored: Insights into AI Applications in Financial Services and Housing

• July 23 - Carta event: NYSE: Getting your Company IPO Ready

• July 24 - Carta event: Essential Tools for Startup Success: Equity Management

• July 25 - House Committee on Agriculture: Reauthorizing the CFTC: Stakeholder Perspectives

• July 25 - SEC event: OMWI Fireside Chat with Chair Gensler

• July 25 - Senate Banking Committee: Advancing National Security through Export Controls, Investment Security, and the Defense Production Act

• July 30 - SEC event: Small Business Capital Formation Advisory Committee Meeting

• July 31 - Carta event: Policy Playbook: How the 2024 Election Could Shape Private Market Policy

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