Democratic state leaders around the country have an unusual strategy to stymie President Donald Trump’s $1.8 billion settlement fund for people who claim they were wrongly investigated by the government.
Their plan: Tax the payouts at 100 percent.
California Gov. Gavin Newsom (D) has endorsed the idea, saying, “It’s an action we look forward to taking.” State legislators in New York and Wisconsin are crafting bills on the topic. And Democratic candidates are rallying behind the tactic in blue states.
“The slush fund is a blatantly corrupt theft of taxpayer dollars, and we need to do everything we can to stop it,” Sen. Michael Bennet (D-Colorado) said in an interview with The Washington Post. Bennet is the leading Democratic candidate for governor in Colorado.
“I actually think this won’t wear well with Republicans or Democrats in America,” Bennet said of the politics of Trump’s fund.
The issue is particularly relevant in Colorado, where Gov. Jared Polis (D) recently granted clemency to Tina Peters, a former county clerk who helped secretly copy voting machine hard drives in an effort to bolster Trump’s false claims that the 2020 election was stolen. Earlier this month, Vice President JD Vance said it was “reasonable” that Peters “get some compensation” from the fund.
The Trump administration drew backlash from Democrats as well as some Republicans when it announced this month that it was establishing a fund to pay people who claim they were wrongly investigated or prosecuted, echoing the president’s claims of a “weaponized” justice system. Trump agreed to drop a $10 billion lawsuit against the IRS over the leak of his tax records in exchange for creating the $1.776 billion pool of money.
A federal judge on Friday temporarily blocked the Trump administration from moving ahead with the fund as critics question how the money will be distributed and worry that it will go primarily to Trump allies.
Democrats in Congress reacted to the fund with outrage but have limited options to respond while they are in the minority. At the state level, however, Democratic officials have more options to try to block the payments.
In California, Assembly Budget Committee Chair Jesse Gabriel (D) said Democrats are planning to put a tax on the payouts in the state budget. “That money belongs to taxpayers, and we’re going to make sure it stays with taxpayers,” Gabriel said.
New York Gov. Kathy Hochul (D) suggested she was interested in a similar plan after lawmakers in her state began discussing a 100 percent tax.
“I have no problem with there being consequences for people who accept that money,” Hochul told reporters this week, calling it “obscene” to “award people who have committed crimes or injustices.”
The push in New York is being spearheaded by Alex Bores, an Assembly member who is running for Congress. Time is of the essence for Bores and others pushing this legislation because the legislature is set to leave Albany for the year next week.
“It’s simple: If you’re a New Yorker and you take from this illegal slush fund, New York state will tax 100 percent of it,” Bores said in a video posted on X. “If you storm the Capitol and you take from this slush fund, too bad, we’re taking it.”
The 100 percent tax idea is gaining traction beyond blue strongholds. In battleground Wisconsin, Democrats hope to flip the GOP-controlled legislature in the fall and have introduced the No Taxpayer Dollars for Insurrectionists Act — alluding to Trump critics’ concerns that the payments could go to people prosecuted for their role in attempting to overturn the 2020 election or storming the U.S. Capitol on Jan. 6, 2021.
Wisconsin Senate Minority Leader Dianne Hesselbein (D) said she was inspired by Bores’s proposal in New York and reached out to his office to talk about it.
“l truly hope that people ask everybody who’s running for office if they believe they should be using taxpayer money to pay insurrectionists,” she said.
Natalie Baldassarre — a spokesperson for the Justice Department, which announced the fund — responded by criticizing Democrats’ governance.
“Instead of flaunting their love of lawfare and taxing constituents into oblivion, blue-state governors 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,” Baldassarre said in a statement.
The states’ strategy of taxing the payouts could face legal challenges. Lawrence Zelenak, a Duke Law School professor with expertise in taxes, noted that the late Supreme Court justice Oliver Wendell Holmes Jr. once said that “the power to tax is not the power to destroy while this Court sits,” nodding to the tool’s limits.
Trump’s $1.8 billion fund faces legal questions, too. The judge who temporarily blocked the plan, U.S. District Judge Leonie M. Brinkema in Virginia, has scheduled a June 12 hearing on the matter.
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