States Threaten to Tax Trump Anti-Weaponization Funds: What to Know

California Democratic Governor Gavin Newsom said Wednesday that his state could impose a 100 percent tax on payments distributed from President Donald Trump's controversial "anti-weaponization fund.”

The move escalates a growing effort by Democratic-led states and federal lawmakers to block or claw back payouts they argue could reward Trump allies, including some tied to the January 6, 2021, attack on the U.S. Capitol waged by his supporters. New proposals in California, New York and Congress could leave recipients with no financial benefit and trigger legal fights over the scope of state and federal tax powers.

Newsom's remarks, delivered amid mounting backlash to the fund created by the Department of Justice (DOJ), align California with similar pushes to neutralize what critics have labeled a "slush fund" tied to a $1.8 billion settlement between Trump and the federal government.

California’s governor told reporters in Sacramento, “One thing I think we're going to try to do is tax 100 percent anyone from California that receives any of those funds. That's an action the state of California can take, and it’s an action we look forward to taking.”

The fund was established earlier this month as part of Trump's agreement to drop a $10 billion lawsuit against the IRS over leaked tax records. Under the deal, the DOJ created a roughly $1.7 billion to $1.8 billion pool to compensate individuals who claim they were harmed by government "weaponization," with a commission overseeing payouts through 2028.

Newsweek has reached out to the DOJ via email on Wednesday evening for comment.

New York Moves to Block Payouts

In New York, a proposed bill would impose a 100 percent state income tax on anyone who receives money from the fund, effectively eliminating any net gain for recipients who reside there.

State Assemblymember Alex Bores, a Democrat who introduced the measure, said the goal is to prevent state residents from benefiting from what he described as a taxpayer-funded political payout.

"If you storm the Capitol and you take from this slush fund, too bad, we're taking it," said Bores, who is running to represent New York’s 12th Congressional District in the U.S. House of Representatives.

Bores’ proposal, dubbed the Anti-Insurrectionist Act in draft form, is designed to ensure that "no resident of this State is enriched" by funds tied to a settlement negotiated by the president and his administration, according to a legislative memo cited by NBC News.

Newsom's statement signaling California could take similar action broadens the scope of the effort, suggesting multiple states may pursue aggressive taxation strategies to blunt the financial impact of any payments.

Congressional Democrats Push Nationwide Tax

At the federal level, Senate Democrats have introduced similar legislation that would impose a 100 percent excise tax on payments from the fund, potentially replacing state-level patchwork with a nationwide approach.

The proposal, introduced by Senate Finance Committee Ranking Member Ron Wyden and Senate Majority Leader Chuck Schumer, targets payments derived from settlements tied to lawsuits brought by a president against the United States.

Under the measure, formally titled the Stop Letting United States Heads Funnel Unauthorized Nontransparent Dollars Act of 2026, recipients would be required to return the full value of any payouts through taxation. The bill also includes an additional 50 percent penalty for willful attempts to evade the tax and mandates reporting requirements to the Treasury Department.

Wyden said the fund was "staggeringly corrupt," while Schumer argued taxpayers should not finance payments to "allies, cronies, and insurrectionists."

Controversial Fund Sparks Bipartisan Concern

The anti-weaponization fund has drawn criticism from both Democrats and some Republicans since its announcement, with lawmakers raising questions about who could qualify for compensation and how payouts would be administered.

DOJ officials, including acting Attorney General Todd Blanche, have said the fund is intended to compensate individuals who believe they were unfairly targeted by federal investigations, with eligibility determined by a commission reviewing claims.

Blanche said the DOJ is "setting up a lawful process for victims of lawfare and weaponization to be heard and seek redress."

During a hearing with senators last week, Blanche defended the fund as "unusual" but "not unprecedented,” while stressing anyone, not just Republicans, can apply.

"It’s not limited to Republicans. It's not limited to the Biden weaponization. It’s not limited in any way, scope or form to January 6th, or to Jack Smith," he said.

But officials have not ruled out payments to individuals involved in the January 6 attack, including some convicted of assaulting police officers during the riot.

Lawmakers from both parties have expressed unease about the arrangement, including concerns about oversight, legal authority and whether taxpayer funds could be directed to individuals involved in political violence or election-related prosecutions.

Republican Representative Brian Fitzpatrick, a Pennsylvania centrist, told Meidas Touch last week, “Bad news. We’re going to try to kill it. We’re considering legislative options. We’re going to write a letter to the AG [attorney general] to start, but we’re considering a legislative option. We’re trying to unpack what exactly the legal machinations are, but-he can’t do that.”

The fund, created using the federal government's Judgment Fund that typically pays legal settlements, emerged as an unusual mechanism tied to Trump's dropped lawsuit, further fueling debate over its legality and scope.

What Happens Next

It remains unclear how the competing proposals-from statehouses to Congress-would interact if enacted, or whether courts would uphold efforts to impose 100 percent taxes targeting a specific category of payments.

Any recipients could face overlapping liabilities, with state and federal taxes potentially eliminating or exceeding the value of payouts. Legal experts have already signaled that challenges are likely, particularly given questions over whether the fund itself complies with statutory and constitutional limits on federal spending.

For now, the dueling proposals underscore how quickly the controversy surrounding the fund has expanded beyond Washington, with states seeking to take matters into their own hands as the first payments loom.

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This story was originally published May 27, 2026 at 7:50 PM.