California Governor Gavin Newsom says the state is preparing to impose a 100% tax on payments distributed to California recipients through a controversial compensation fund tied to President Donald Trump and January 6 defendants, escalating an already growing legal and constitutional battle.
The proposed tax would target payouts from a nearly $1.8 billion fund established as part of a legal settlement involving Trump and the Internal Revenue Service (IRS). The fund was reportedly created to compensate individuals alleging they were victims of political “weaponization” during investigations and prosecutions connected to the January 6, 2021 attack on the U.S. Capitol.
“One thing I think we’re going to try to do is tax 100%,” Newsom said Wednesday. “Anyone from California who receives any of those funds, we want to tax 100% of those proceeds.”
In a separate social media statement, Newsom’s office described the compensation pool as a “slush fund.”
The proposal immediately raised significant constitutional and legal questions surrounding state taxation powers, political retaliation claims, equal protection concerns, and potential federal preemption issues.
Legal scholars note that while states generally possess broad taxation authority, a tax explicitly targeting a politically controversial class of recipients could invite challenges under the U.S. Constitution, particularly if opponents argue the measure amounts to punitive discrimination rather than neutral tax policy.
The compensation fund itself is already facing mounting scrutiny. According to reports, the $1.776 billion agreement emerged from Trump’s legal settlement with the IRS after he sued the agency over leaks involving his tax records.
The issue has become even more contentious following Trump’s pardons of more than 1,500 January 6 defendants. Some recipients reportedly intend to seek compensation for prosecution costs, incarceration, reputational damage, and lost business income stemming from their criminal cases.
Critics from both parties have questioned whether the fund could effectively reward individuals convicted of violent crimes connected to the Capitol attack.
“Could potentially compensate someone who assaulted a police officer, admitted their guilt, got convicted, got pardoned, and now we’re going to pay them for that?” said Thom Tillis. “That’s absurd.”
The settlement is also reportedly facing litigation from two police officers who defended the U.S. Capitol during the January 6 riot. Details of those claims remain ongoing.
Additional controversy surrounds reports that portions of the IRS settlement may permanently restrict future audits involving Trump, members of his family, and affiliated businesses — an arrangement that some lawmakers and legal observers say could trigger further judicial scrutiny if confirmed in court filings.
As of publication, neither the White House nor the Department of Justice had publicly responded to Newsom’s proposed tax measure.
If California moves forward, the dispute could rapidly evolve into a major federal court battle testing the limits of state taxation authority against politically charged federal settlement distributions.
