Leaders in several states are exploring an unusual strategy to block payments from a proposed $1.8 billion federal compensation fund created by the Trump administration: taxing the payouts at 100%.
The effort comes in response to a fund established this month for people who claim they were wrongly investigated or prosecuted by the federal government. The plan stems from a settlement agreement in which President Donald Trump agreed to drop a $10 billion lawsuit against the Internal Revenue Service over the release of his tax records in exchange for the creation of a $1.776 billion compensation pool.
The proposal has drawn criticism from Democrats and some Republicans, who question how the money would be distributed and whether it could primarily benefit Trump allies, including people prosecuted in connection with efforts to overturn the 2020 election or the Jan. 6, 2021, Capitol riot.
California Gov. Gavin Newsom has endorsed a proposal to tax any payments received by California residents. State lawmakers are working to include the measure in the state budget. Similar proposals are being discussed in New York, while Wisconsin Democrats have introduced legislation known as the No Taxpayer Dollars for Insurrectionists Act.
Supporters of the tax proposals argue that taxpayer funds should not be used to compensate individuals they believe engaged in wrongdoing. New York lawmakers have been particularly vocal, saying recipients of the federal payouts should not expect to keep the money if they reside in the state.
The Trump administration has pushed back against the criticism. A Justice Department spokesperson accused Democratic governors of focusing on political disputes instead of addressing issues such as taxes and crime in their states.
Meanwhile, the fund itself faces legal challenges. A federal judge in Virginia has temporarily blocked the administration from moving forward with the program while questions about its legality are considered. A hearing is scheduled for June 12. In a separate case, a federal judge in Florida has ordered attorneys involved in the settlement to respond to allegations that the agreement may have been improper.
Source: Phila Inquirer