Jun 2, 2026
Several Democratic-led states are considering special taxes on payments from the Trump administration’s new $1.8 billion ”anti-weaponization fund,” a program created to compensate people who say they were wrongly investigated or prosecuted by the federal government.
The proposals come after the fund was established as part of a settlement between President Donald Trump and the IRS. Critics argue that taxpayer money could ultimately flow to Trump allies, Jan. 6 defendants and others connected to efforts to overturn the 2020 election.
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“The slush fund is a blatantly corrupt theft of taxpayer dollars, and we need to do everything we can to stop it,” Colorado Sen. Michael Bennet told The Washington Post.
Where the $1.8 billion comes from
The proposed fund would draw money from the federal government’s Judgment Fund, a long-standing account created by Congress in 1956 to pay legal settlements and court judgments against the United States. The fund allows certain claims against the government to be paid without Congress having to approve each payment individually.
The Trump administration’s new $1.776 billion “anti-weaponization fund” would draw from that existing pool of money. The program was established as part of a settlement resolving President Donald Trump’s lawsuit against the IRS over the disclosure of his tax returns.
Critics argue that’s not what the Judgment Fund was intended to be used for. A group of 35 former federal judges appointed by both Democratic and Republican presidents recently filed a motion asking the court to take another look at the agreement.
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Who could qualify for a payout?
Supporters of the fund say it is intended to compensate people they believe were unfairly targeted by the federal government. But people like Tina Peters could potentially receive compensation.
Peters, a former Colorado county clerk, was convicted after allowing an outside individual to access county voting equipment and copy election data that was later used to support false claims that the 2020 election had been stolen. She was released from prison last month after Colorado Gov. Jared Polis reduced her sentence. At a White House briefing in May, Vice President JD Vance said it would be “reasonable” for her to receive compensation from the fund.
For opponents, that’s exactly the problem. They argue taxpayer money could end up benefiting people involved in election denial efforts, fueling opposition in several Democratic-led states.
In California, Gov. Gavin Newsom has backed efforts to impose a 100% tax on any payments state residents receive from the fund, arguing the state should be able to reclaim the money. New York officials are considering a similar approach, and Assembly member Alex Bores has proposed taxing the payments at 100%.
“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.”
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In Wisconsin, Democratic lawmakers have introduced the “No Taxpayer Dollars for Insurrectionists Act,” a proposal that would impose a 100% tax on payments from the fund. Wisconsin Senate Minority Leader Dianne Hesselbein, who said she was inspired by New York’s proposal, argued voters should closely examine where candidates stand on the issue.
“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.
The fight isn’t over
The Trump administration has pushed back against efforts to block the payouts. Natalie Baldassarre, a spokesperson for the Justice Department, accused Democratic-led states of focusing on political attacks instead of governing.
“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.
Whether states could actually tax away the payments remains an open question. Joseph Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation, told Politico that states generally have broad authority to tax income. Like wages, investment gains and many other forms of income, government payments can typically be taxed by states.
“But it would be hard to argue that a 100 percent tax is anything other than a taking,” he said.
For now, both the compensation fund and the proposed state taxes remain tied up in uncertainty. A federal judge has already temporarily blocked the fund, and a hearing is scheduled for June 12 as challenges to the program continue to move through the courts.
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Victoria Vesovski is a Toronto-based staff reporter at Moneywise covering personal finance, lifestyle and trending news. She holds degrees from the University of Toronto and New York University, and her work has appeared on platforms including Yahoo Finance, MSN Money and Apple News.
