Blue states’ plan for 100% tax on Trump’s ‘anti-weaponization’ payouts not as easy as it looks

Key Democrats in blue states are landing on a common idea — if their residents receive payouts from the Trump administration’s planned “Anti-Weaponization Fund,” they’ll tax all of it.

State lawmakers are working together and sharing legislative text in hopes of levying a 100 percent income tax on any payments from the $1.8 billion fund, created through the settlement of President Donald Trump’s lawsuit against the IRS. And their governors are taking interest, with California Gov. Gavin Newsom endorsing the proposal Wednesday and New York’s Kathy Hochul signaling Thursday she’d be open to it as well.

“I have no problem with there being consequences for people who accept that money,” Hochul told reporters.

Democrats have been accusing Trump of using the Oval Office to fill the wallets of his family and friends for months now. The new barrage of tax proposals, however, shows that few of the president’s actions have whipped up this much anger among Democrats — from lawmakers accusing the administration of setting up a “slush fund” for people who participated in the Jan. 6, 2021, attack on the U.S. Capitol, to Bruce Springsteen pausing his three-hour concert in Washington on Wednesday night to call the fund “an American outrage.” Along with California and New York, similar proposals have cropped up in Illinois and New Jersey, with more states expected to follow.

But it’s also an open question if blue-state governors and legislators, in their zeal to hit back at Trump, have crafted policies that won’t stand up in court.

Joseph Bishop-Henchman of the National Taxpayers Union Foundation stressed that the judiciary generally defers to lawmakers on tax matters, but that judges could have a variety of questions about whether a 100 percent levy on fund payouts passed constitutional muster.

“It would be an unusual thing for states to do, which normally would cut against them,” Bishop-Henchman said. “But the entire issue is also unusual.”

Sharing bill text

The biggest blue states have reason to move swiftly. Alex Bores, a New York Assembly member who’s crafted a 100 percent tax proposal, said he’s pushing to get a vote on his bill before the Legislature departs Albany next week.

In California, Democrats are racing to get a fund tax proposal into their next spending plan, while the Illinois state representative pushing the idea, Bob Morgan, says he is doing “everything I can” to wedge it into the state budget, which lawmakers must finish negotiating by midnight Sunday.

Bores said that he shared legislative language with colleagues in both California and Illinois, to help everyone get on the same page ahead of those deadlines.

“This bill is about sending a message that the slush fund Trump is setting up is clearly illegal and we have powers at the state level to combat this and discourage this,” said Bores, who’s currently seeking a Manhattan-based U.S. House seat.

Other states are also putting together similar bills, if not as quickly. Democratic lawmakers in New Jersey, for instance, currently are drafting their version of the measure.

Legislative hurdles

Democrats in California, Illinois and New York, meanwhile, could face some hurdles in trying to win quick victories on taxing fund payments.

Still, Hochul has suggested she would back Bores’ proposal, and she typically takes a more cautious approach with pending legislation.

“If there’s a tax that goes into a fund that helps New Yorkers, it might be a good way to go,” she said Thursday.

Democrats face a different challenge in California, where the deadline for introducing new legislation already has passed. That means lawmakers must either gut one of their other measures to pass the tax or insert it into the state budget, which must be signed into law by early July.

Assembly Budget Chair Jesse Gabriel said lawmakers in his chamber are still “ironing out” language for a plan, while Senate Budget Chair John Laird told POLITICO on Thursday that he “hasn’t analyzed” the idea.

Senior Trump administration officials clearly have taken notice of all the Democrats’ maneuvering in state capitals.

“There’s no cure for stupid,” Treasury Secretary Scott Bessent told reporters Thursday after being asked about Newsom’s proposal.

A Justice Department spokesperson also lashed out at the plans for a bill in New Jersey, arguing that lawmakers there instead “should focus on preventing more of their residents from fleeing in droves to free states with lower taxes, less crime, and governments that actually serve the people they represent.”

Legal challenges

How the courts would view these kind of taxes is another question.

Taxes that large could be ruled bills of attainder, which are effectively laws that bypass the courts to target specific groups. But Bishop-Henchman noted that the Supreme Court has only twice struck down state laws for that reason, neither of which happened in the last 150 years.

Judges could also examine whether taxes targeting fund disbursements were confiscatory or exceeded constitutional bans on excessive fines. The judiciary has struggled to articulate when big tax rates bleed into the seizing of property, Bishop-Henchman said, noting that the courts have blessed top federal income tax rates north of 90 percent.

“But it would be hard to argue that a 100 percent tax is anything other than a taking,” he said.

Corey Husak, director of tax policy at the left-leaning think tank Center for American Progress, said states were within their authority to tax “anti-weaponization” awards, just as they would unemployment insurance and other government payments. But because the agreement establishing the fund does not explicitly require the payments be made public, he said, states may have a hard time collecting taxes on them.

“It’s possible no one outside of the fund’s administrators and the Trump family will know who the money is going to,” Husak said. “Taxpayers still have a responsibility to report the money that they receive, but it’s possible that there won’t be any kind of record keeping that states can rely on to know who the money is going to and track whether they are duly paying taxes on it.”

Danny Nguyen contributed to this report.

المصدر: Politico