California Gov. Gavin Newsom has announced that the state will impose a 100% income tax on any payments received by California residents from the Trump administration's $1.776 billion anti-weaponization fund.

New York state Assemblyman Alex Bores has floated a similar move in a social media post decrying the "illegal slush fund" aimed at rewarding January 6 insurrectionists..

The moves represent the most aggressive state-level pushback yet against the fund unveiled last week by the U.S. Department of Justice as part of President Donald Trump's settlement with the Internal Revenue Service over his leaked tax returns.

"It's an action we look forward to taking," Newsom said at a Wednesday news conference covered by Reuters.

The fund, formally described by the DOJ as a mechanism "to hear and redress claims of others who suffered weaponization and lawfare," would be administered by five individuals appointed by the U.S. attorney general.

Quarterly reports on payments will be delivered to the attorney general, and claims must be filed before Dec. 1, 2028, after which any remaining balance returns to the federal government, according to DOJ documentation.

What the fund actually pays out

The $1.776 billion pool is drawn from a fund ordinarily used to satisfy court judgments against the federal government – an unusual diversion that has drawn scrutiny from legal observers on both sides of the aisle. Acting U.S. Attorney General Todd Blanche characterized it as an effort "to make right the wrongs that were previously done," according to the Guardian.

Among the fund's potential beneficiaries are individuals pardoned in connection with the Jan. 6, 2021, attack on the U.S. Capitol. Trump pardoned more than 1,500 defendants in one of his first acts upon returning to office. Those pardoned individuals have since begun tallying their losses – prosecution costs, jail time, and business disruption – in hopes of receiving compensation, according to Reuters.

Read more: Feds arrest Ameriprise advisor on January 6 riot charges

The first person to formally file a claim was not a Jan. 6 defendant but Michael Caputo, a political operative and longtime Trump ally. Caputo is seeking $2.7 million, claiming he was improperly targeted by the FBI's "Crossfire Hurricane" investigation into alleged collusion between the Trump campaign and Russian operatives during the 2016 presidential election, according to NBC News.

The U.S. Senate Select Committee on Intelligence concluded in 2018 that Russian President Vladimir Putin had indeed attempted to influence that election in Trump's favor.

State tax proposals take aim at recipient proceeds

Bores, a Democrat representing part of Manhattan, announced he is drafting legislation called the Anti-Insurrectionist Act. The bill, described in a draft memo to the State Assembly, would ensure "no resident of this State is enriched by what is, in substance, a publicly-funded political payout negotiated between the President and his own Administration."

"We can't stop Trump from breaking the law in Washington," Bores said in a statement to NBC News. "But we can decide that in New York, money you got for attacking American democracy is fully taxable."

Approximately 80 to 90 of the Jan. 6 defendants came from New York state, according to databases maintained by NPR and the Seton Hall University School of Law, giving the state-level legislation practical reach. If enacted, the 100% rate would effectively wipe out any net proceeds a New York resident collected from the fund.

Bores' proposal carries echoes of a federal counterpart. Democratic members of the House Ways and Means Committee introduced the "Slush Fund Act" last week, which would impose a 100% tax on any sitting president who sues the U.S. government and receives a payout. Rep. Jimmy Panetta, D-Calif., said in a statement that the legislation would ensure "innocent taxpayers don't get stuck footing the bill."

Read more: Why adviser groups won't completely shun lawmakers who voted to overturn the 2020 election

Bipartisan criticism and legal challenges

The immediate contentions against the fund cut across party lines, a notable development in Washington's current polarized climate. Sen. Ted Cruz, R-Texas, told reporters that roughly half of Senate Republicans in a closed-door meeting with Blanche expressed dissatisfaction with the arrangement, according to NBC News.

Sen. Thom Tillis, whose early opposition to Kevin Warsh's confirmation as Federal Reserve Chair also made recent headlines, was more direct. "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? That's absurd," Tillis said, according to Reuters.

Two Capitol Police officers who defended the building on Jan. 6, 2021, have already filed a lawsuit seeking to block the fund entirely, according to Reuters. Democrats and some Republicans have also raised objections to a separate provision of the IRS settlement that purportedly bars the agency from auditing past tax returns filed by Trump, his relatives, and his business entities.

Read more: Treasury rips up Booz Allen contracts after Trump tax data leak

For financial advisors and wealth managers tracking tax policy developments that affect client planning, the state-level tax proposals raise an esoteric but pointed question: if a client receives proceeds from a government fund and a state subsequently imposes a 100% confiscatory tax on that income, what are the planning options, if any?

The answer, in both California and New York as currently drafted, appears to be none – that is the explicit intent of both proposals.

Vice President JD Vance sought to broaden the fund's perceived legitimacy Tuesday by noting that "anybody can apply" – even, hypothetically, Hunter Biden.

Press inquiries to the White House the New York legislation were redirected to the DOJ, which did not immediately respond, according to NBC News.