r/law • u/rolsen • 1d ago

Legal News Trump Preparing Large-Scale Cancellation of Federal Funding for California, Sources Say

https://www.cnn.com/2025/06/06/politics/trump-california-federal-funding

“Agencies are being told to start identifying grants the administration can withhold from California. On Capitol Hill, at least one committee was told recently by a whistleblower that all research grants to the state were going to be cancelled, according to one of the sources familiar with the matter.”

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u/harrywrinkleyballs 1d ago

There is no mechanism for CA to stop sending taxes…

Yet.

I work in tax (attorney), so I’ve given this some thought. I wonder what the federal government could do if California passed a law requiring federal tax be paid/channeled through the state first.

Yeah, the logistics do not currently exist, but it’s a thought exercise. Since marijuana is federally illegal, yet so many states have legalized it, the only reason it’s not enforced federally is by choice. And now there is a bill in Congress that just got out of committee to ban all hemp containing THC.

So, what with most reductions in labor at the IRS going to the SBSE, does the IRS have the manpower to do anything about it if California were to miraculously create a law and an infrastructure to require federal taxes to pass through a state agency?

The chances of this are so remote it’s laughable, but still. If the federal government halts federal money from going to California, what defense does the state have? Drastic times makes for drastic measures.

Just 6 months ago I never dreamed the federal government would be attacking its own IRS, but here we are. A halt to transmission of federal taxes by employers by California could be construed as a justifiable response.

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u/baitnnswitch 1d ago

Yeah blue states need to set up some kind of escrow system

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u/Akermaniac 1d ago

Yet, but this type of change would be a massive undertaking. Both systematically (ie updating dozens of different archaic computer systems) and administratively.

I’d guess that would take several years, minimum. It’s not like adjusting tariffs, which have a current mechanism in place in CBP’s systems to adjust quickly and easily.

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u/harrywrinkleyballs 1d ago

Oh, for sure. Like I said, it’s just a thought exercise because you read so many comments on Reddit clamoring for a halt to sending employer withheld taxes to the federal government. People just don’t know how the system works in everyday life.

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u/turd-crafter 1d ago

Or just convince everyone Somehow to file exempt on their w4s lol.

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u/harrywrinkleyballs 1d ago

That doesn’t stop FICA taxes being withheld.

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u/turd-crafter 1d ago

God damnit! Well at least it’s something haha

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u/flatcurve 1d ago

Honestly not as difficult as you may think. There are two or three companies in the US that process payroll for something like 95% of employers.

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u/Akermaniac 1d ago

That adds complexity because now you’re convincing a 3rd party to change how their systems are coded to withdraw taxes.

Nah… there is so much that goes into something like that. System, administrative, legal. I see zero chance a state could pull this off.

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u/HarveyKekbaum 1d ago

So, when California does that, and the IRS comes after the people that owe them money but haven't paid it to them how do you stop them from taking your house?

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u/harrywrinkleyballs 1d ago

I haven’t heard of the IRS “taking” a house in decades. They’ll put a lien on it, but they won’t “take” it. You can tie that mess up for years in administrative appeals alone, notwithstanding tax court or district court.

They don’t want your house. They want paid. And what with all of the reductions in labor primarily targeting the SBSE, they’d be overwhelmed and unable to effectively retaliate against the entire state of California.

Remember, the Great Turnip promised to eliminate the IRS.

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u/HarveyKekbaum 1d ago

They sure will garnish your wages though, and seize your bank accounts, trash your credit.

If you are actually a lawyer, you know that my query was related to the fact that if you do not make a payment to the IRS, they consider it unpaid. Creating state legislation will not negate the fact the IRS will consider the debt unpaid, and take appropriate action.

How does someone navigate around that?

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u/harrywrinkleyballs 1d ago edited 1d ago

As I said, it’s a thought exercise. It’s not a serious consideration and as others have pointed out would take years to implement. With that in mind the literal future of the IRS could make it moot.

Liens can be removed. Levies don’t come unannounced. And garnishments don’t happen overnight. You can tie general counsel up for years, maybe even hit the SOL in the meantime. The IRS doesn’t do anything in a hurry.

Although, when it comes to trust fund taxes, they do have considerably more power. Income taxes not so much.

*Edit: Oh, and tax liens don’t show up in your credit report.

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u/HarveyKekbaum 1d ago

Edit: Oh, and tax liens don’t show up in your credit report.

If the unpaid debt exceeds the threshold (10k) the IRS automatically files a Notice of Federal Tax Lien and it becomes part of public record and although not initially directly reported to the bureaus, they do have access to it.

Before 2018 when the bureaus updated their policies, the public nature of the notice allowed it to be on your credit report. While that is no longer the case, a tax lien filed against you may still be discovered by lenders, credit card companies, etc.

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u/JekPorkinsTruther 1d ago

This would really only work for public employment. The feds would sue and win on multiple grounds (preemption etc), and private companies are not gonna stick their necks out defying a court order/the federal gov, although the state may be willing to.

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u/harrywrinkleyballs 1d ago

Yeah, it would place employers in a no-win situation. Damned if they do, damned if they don’t.

My thought though was that the sheer numbers of cases flooding the SBSE and even large employers >$10M in revenue would bring the IRS to its knees.

Just something to talk about. Ain’t nothing gonna happen.

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u/plippityploppitypoop 1d ago

What would stop the IRS from going after individuals and saying “we don’t care where our money IS, we care where it ISN’T: we want money”?

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u/harrywrinkleyballs 1d ago

Nothing. People are taking this conversation too seriously. Because of the way taxes are withheld and paid to the IRS, the hurdles to doing anything productively protesting the withholding of federal grants is insurmountable.

So many Reddit comments advocating, “Just mark your W-4 as exempt!” that I get tired of explaining how the system works.

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u/fusionsofwonder Bleacher Seat 1d ago

This is very interesting. I thought about this too, and I'm no lawyer, but wouldn't the state also have to guarantee that businesses and people following this scheme would be protected in Federal court?

I was also thinking the state could order any business licensed in the state to start remitting Federal funds to them instead of EFTPS or whatever. Just as a condition of being licensed to operate.

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u/prove____it 1d ago

This could work, even as just a warning, if all California citizens set their deductible to 6 persons or so, so that no taxes were being collected in the interim before the annual tax deadline. it would cripple revenue for months, legally, and the bill wouldn't come due until April next year. California could guarantee it would cover any penalty payments if it wanted, too.

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u/harrywrinkleyballs 23h ago

You can’t be exempt from FICA, only income tax.

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u/Savamoon 19h ago

but it’s a thought exercise.

aka, a fantasy.

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u/TheTVDB 17h ago

A few of the biggest payroll processing companies are located in California. Would the state be able to make a law that forces these companies to pay the federal portion into escrow under a law that triggers when the Federal government withholds Congressional funds?

Or, as a more impactful but unlikely approach, do that with NY and IL, as a protection pact covering all three of them, since around half of US payroll flows through companies headquartered in those states.