Democratic-Led States Float 100% Tax on Payouts From Trump Fund

Lawmakers in a handful of states—including California, New York and Illinois—are scrambling to cancel out payments from a $1.8 billion fund the Trump administration has earmarked for people alleging government mistreatment by imposing a 100% tax.

At least five states controlled by Democrats have proposed or are planning to introduce legislation that would claw back payouts from the “Anti-Weaponization Fund” the US Justice Department established this month to resolve President Donald Trump’s lawsuit with the Internal Revenue Service.

The unusual settlement has come under fire, with critics deriding it as a taxpayer-funded “slush fund” for Trump’s allies and supporters, potentially including people who stormed the US Capitol on Jan. 6, 2021.

A 100% tax means the fund’s beneficiaries would owe the full amount of the payout to their respective states.

The tax proposals open a fresh rift between states and the White House, which has sought to pressure states on everything from conforming their tax codes with the president’s signature tax law to phasing out income taxes.

The Justice Department didn’t respond to a request for comment Thursday about the state actions.

The flurry of state activity started Tuesday when New York Assembly Member Alex Bores (D) introduced the Anti-Insurrectionist Act.

“It’s simple: If you’re a New Yorker who takes from Trump’s illegal January 6th slush fund, NY will tax 100% of it,” Bores said in a post on X.

California Gov. Gavin Newsom (D) followed up with his own proposal on Wednesday. “Anyone from California who receives any of those funds, we want to tax 100% of those proceeds and that’s an action the state of California can take,” Newsom said in a press conference. The state now plans to work the proposal into the budget that will be approved in June.

Other states have caught on. New Jersey Sen. Andrew Zwicker (D) told Bloomberg Tax he’s drafting a bill that would tax 100% of the funds when they’re distributed to a resident. He said he wants any proceeds from such a tax to support mental and physical health initiatives for police officers and first responders.

Connecticut Senate Majority Leader Bob Duff (D) said Thursday he would introduce a bill when the state’s legislature reconvenes next year. And Illinois Rep. Bob Morgan (D) introduced a bill Thursday (HB 5794) to include the tax in the state’s fiscal year 2027 budget before the legislature adjourns on May 31.

Bores’ X post “immediately struck a chord” with Morgan, who said he has tried to bring attention to Illinois residents who were present during the Jan. 6 riot.

The tax “would mean that nobody’s getting enriched for having participated in an insurrection,” Morgan said in a phone interview. The state could conceivably collect tens of millions of dollars of revenue from the tax, he estimated.

As reported by Bloomberg News, the Justice Department on May 18 reached a deal with Trump to settle his $10 billion lawsuit with the IRS over the 2019 leak of his tax information.

The settlement included the creation of a $1.776 billion fund to pay alleged victims of government “weaponization,” an arrangement that could result in seven-digit payouts to Trump supporters—potentially including those who stormed the Capitol on Jan. 6 in a failed attempt to prevent Congress from certifying the results of the 2020 election, which Trump lost.

It’s unclear exactly how these funds will be taxed, even if state governments don’t intervene with special rates. UC Davis tax professor Darien Shanske said Trump may be on the hook for settlement-related taxes, and recipients of awards from the new fund would also likely be subject to income tax, but “the whole situation is so unprecedented and thus murky.”

The fund has come under intense scrutiny, including from congressional Republicans rarely out of step with the president. It’s also facing legal challenges from Capitol Police officers who responded to the Jan. 6 riots.