https://cmarmitage.substack.com/p/blue-states-can-withhold-taxes-from
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Author’s note: if you’re a CPA, you may want to avert your gaze.
Since July 1, 2026, Maryland law has allowed the state comptroller to stop payments to the federal government when federal agencies defy court decisions requiring them to pay Maryland money Congress approved. Democratic Gov. Wes Moore signed the Federal Obligations Enforcement Act on April 28, 2026, after the state Senate passed it 32-13 and the House of Delegates 92-33.
Factually speaking, blue states can withhold their taxes. You can do many things, that doesn’t mean they’re legal. As the current administration proves daily, the law is only as valid as the mechanisms that enforce it.
Every day, ICE beats and abducts people who are doing nothing unlawful, U.S. citizens among them, while the president openly admits to insider trading and market manipulation. More relevant to this article, he illegally withholds lawfully appropriated funds to punish states he views as his political enemies.
So how does this relate to taxes?
First, we should explore how much legal risk a state assumes and how that depends on the approach that state takes, as well as the claimed reasons for withholding. State tax resistance sorts into four tiers:
Lawful, and already won. States rewrite their own tax codes around federal tax law and sue when a federal tax exceeds what Congress authorized.
Lawful, and barely used. States withdraw the voluntary help they give the Internal Revenue Service.
Untested, and law in Maryland. A state holds back its payments to the federal government after federal agencies defy court orders to pay the state money that was lawfully appropriated and therefore promised.
Risky now, but defensible by design. A state has all employers route federal withholdings through a state-controlled account, where those funds are then disbursed to the federal government for the state’s taxpayers.
States have already won with the first tier. After Congress capped the federal deduction for state and local taxes at $10,000 in 2017, legislatures let partnerships and S corporations pay state income tax at the business level, where the cap doesn’t reach. “The IRS blessed this approach in Notice 2020-75,” Nick Johnson, a senior fellow at the nonprofit Institute on Taxation and Economic Policy, told the D.C. Council in March. In February, Oregon and 11 other states won when the Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that the president’s emergency tariffs exceeded what Congress authorized.
Maryland’s act, sponsored by state Sen. Katie Fry Hester and House Majority Leader David Moon, both Democrats, requires the Board of Public Works, which the governor chairs, to declare the federal government delinquent before the comptroller withholds anything. Moon compared his bills to traditional “collections” actions against a “deadbeat debtor,” and he told Stateline, a nonprofit news service, in 2025: “Without these funds, we are going to see Maryland residents severely harmed.”
The federal government sends state governments far more money than they send back, so withholding state payments “isn’t likely to change very much,” David Super, a Georgetown University Law Center professor, told Stateline. Routing covers the federal income and payroll taxes withheld from every worker in the state, a much larger sum.
Under presumptive good faith conditions, this system would have no impact on the functioning of the federal government. Under current circumstances, the federal government is illegally and with malice withholding lawfully appropriated funds.
In the words of U.S. District Judge Mary McElroy of Rhode Island, whom the president appointed in his first term, “The presumption of regularity that has previously been extended to [the Justice Department] that it could be taken at its word ... no longer holds.”
The Government Accountability Office, Congress’s auditor, concluded in August 2025 that the National Institutes of Health violated the Impoundment Control Act “by improperly withholding appropriated funds from obligation and expenditure.” During the October 2025 shutdown, the Energy Department terminated $7.56 billion for 223 projects, and Russ Vought, the White House budget director, posted that the projects were in 16 states. All 16 voted for Kamala Harris.
Rather than allowing harm to come to the state’s residents from those withheld funds while the administration ignores court orders, routing would let a state say, “We are happy to hand you this money, but we are going to use it in the way Congress authorized in the interim.”
New Jersey Gov. Mikie Sherrill, then governor-elect, asked on Jon Stewart’s podcast in November 2025, “if they’re not going to run the programs, then what are we paying them for?”
California Gov. Gavin Newsom gave a different reason in June 2025: “We pay over $80 BILLION more in taxes than we get back. Maybe it’s time to cut that off.” Treasury Secretary Scott Bessent answered that Newsom was “threatening to commit criminal tax evasion.”
Under current conditions, routing would expose both the people who carry it out and employers to federal felony charges. Chief Justice John Marshall held in McCulloch v. Maryland in 1819 that states have “no power ... to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by Congress.”
Appropriations acts are constitutional laws enacted by Congress, and a state spending withheld money on the purposes Congress set would carry out those laws while the administration refuses to. A court would weigh them against the tax code, which Congress also enacted.
New York’s RECOURSE Act, sponsored by state Sen. Jessica Ramos and Assembly Member Micah Lasher, allows withholding only when federal funds are owed “in contravention of a court decision,” and caps it: “the total amount withheld shall not exceed the amount of federal funds owed to the State.” Workers lose nothing under any version, because Treasury regulations credit withheld tax to the employee “even though such tax has not been paid over.”
The Existentialist Republic released model legislation in February 2026 that proposes routing withholding into escrow if federal officials subvert an election and indemnifies and defends every employer who complies.
States have done openly for years what federal law makes a crime. USAFacts, a nonpartisan data group, counts 24 states and the District of Columbia that have legalized recreational marijuana, and most of them license and tax the sales. Since December 2014, the Rohrabacher-Farr amendment has barred the Justice Department from spending money to block state medical marijuana laws.
So I ask you, the reader, if we could use nullification for people to get stoned, why can’t we use it to protect human rights and stop fascism?
A state that stops paying the IRS with no court judgment behind it breaks federal law, which treats withheld tax as "a special fund in trust for the United States." But if the contract has already been broken, the party that broke it can't demand that the other keep paying. To be clear, the contract in question is the law, the Constitution, and the Union itself.
The administration has cut off or held back more than $178 billion Congress approved, including more than $1 billion in Medicaid payments to California and Minnesota. That’s our money. Lives are on the line while the president plays politics with it, and he still collects federal tax from every state and employer on schedule.
They also use that money for war, a publicly funded MAGA army, and mass internment camps, but in modern America morality and ethics don’t carry sufficient water in political discourse.
Maybe it’s time to hit them where it hurts the most. Right in the money bags.
CALL TO ACTION
Who you’re contacting and how: Reach out to one of your state legislators and/or state comptroller/treasurer. You can do that by email, phone, FaxZero or even a printed letter. You could even go to their office during business hours, bring donuts, and tell the staff you’re going to talk to them about an issue you care about if the representative isn’t there.
Find your legislators by clicking on this sentence.
What you’re asking for: to publicly endorse a bill modeled on Maryland’s Federal Obligations Enforcement Act. You can read it, even print it out and share it if you like, by clicking on this sentence.
Let them know who you are, what you want, and why you care. Offices count identical messages once, so write it in your own words.
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