Missouri poised to become first U.S. state to exempt stock sale profits
from income taxes
[May 08, 2025] By
DAVID A. LIEB
JEFFERSON CITY, Mo. (AP) — Investors who profit from selling stocks,
real estate and other assets soon could reap an even larger benefit in
Missouri, which is poised to become the first U.S. state to exempt
capital gains from its income tax.
Legislation that won final approval Wednesday would halt the capital
gains tax this year for individuals and could eventually eliminate it
for corporations, if state revenues keep growing. The tax repeal now
heads to Republican Gov. Mike Kehoe, who has said he's “very supportive”
of it.
Though proponents hope it can spur the economy, detractors assert that
the capital gains tax repeal will primarily benefit the rich and result
in less tax revenue for public schools and services. The Republican-led
Legislature overcame objections by Democrats only after expanding the
bill with greater tax breaks for seniors and disabled residents and new
sales tax exemptions for diapers and feminine hygiene products.
Missouri's unique income tax carve-out comes as Republican-led
legislatures in at least eight other states have passed more traditional
income tax rate reductions this year. It also comes as Congress weighs
whether to renew and expand income tax breaks enacted during President
Donald Trump's first term in office.
What is a capital gains tax?
Capital gains are profits from the sale of assets such as stocks,
cryptocurrency or property. The federal government taxes long-term
capital gains, on assets held for more than a year, at a lower rate than
ordinary income.
All states that tax income also tax capital gains. Missouri currently is
among 32 states and the District of Columbia that tax capital gains at
the same rate as wages and other income, according to the nonprofit Tax
Foundation. Eight states tax capital gains at a lower rate than other
income.
Some Democratic-led states have been moving in the opposite direction.
Maryland lawmakers last month passed a bill that would impose a 2%
capital gains tax on those with incomes over $350,000. And Washington
lawmakers recently passed legislation to impose an extra 2.9% tax on
capital gains over $1 million. Minnesota already imposes a surcharge on
capital gains and other investment income over $1 million.
What's the case for eliminating the capital gains tax?
Proponents of axing the capital gains tax say the tax discourages
investment and incentivizes people to hold onto assets instead of
selling them and spending money elsewhere in the economy.
“When you tax something you get less of it," said Jonathan Williams,
president and chief economist at the American Legislative Exchange
Council, an association of conservative lawmakers and businesses. "The
idea is, of course, you want more investment in your state.”
Though ALEC has long backed the repeal of state capital gains taxes,
Missouri House Speaker Pro Tem Chad Perkins said the idea came to him
last year from friends at an employee-owned construction company that
was getting hit with the tax. He said his legislation also could benefit
family farmers who want to sell their land.
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Members of the Missouri House debate legislation to exempt capital
gains from the state income tax on May 7, 2025, at the state Capitol
in Jefferson City, Missouri. (AP Photo/David A. Lieb)
 The capital gains tax results in
"lost economic opportunity, financial sclerosis, lower wages -- all
of which serve to make Missouri less competitive both domestically
and internationally,” said Republican state Sen. Curtis Trent, who
handled the bill in the Senate.
Who would benefit from the tax repeal?
Opponents say the wealthy will get the greatest reward.
Repealing Missouri's tax on capital gains would set “a worrisome
precedent” nationally and “worsen economic and racial inequities,”
said Sam Waxman, deputy director of state policy research at the
liberal-leaning Center on Budget and Policy Priorities.
One government study found that white families are more likely to
report capital gains than some minorities. Among middle-income
taxpayers, about 8% of white families benefited from the federal
government's tax rates on capital gains and dividends compared to
just 3% of Black families and 1% of Hispanic families, according to
a 2023 U.S. Treasury Department report.
In Missouri, about 542,000 individual income taxpayers reported
capital gains in 2022, amounting to just one-fifth of all filers,
according to the Missouri Budget Project, a nonprofit research group
that opposes the capital gains tax repeal. The group estimates that
80% of the tax relief would go to the wealthiest 5% of taxpayers.
What's the cost of repealing the capital gains tax?
Legislative researchers estimate Missouri's capital gains tax repeal
could cost the state about $262 million annually when fully
implemented. But that's disputed by both supporters and opponents.
The Missouri Budget Project estimates the cost could be nearly $600
million annually.
Trent predicts the tax repeal will trigger “increased economic
growth (that) will translate into increased tax revenue" over time.
Owen Zidar, an economics and public affairs professor at Princeton
University, studied the impacts of 584 capital gains tax rate
changes in states over four decades. Capital gains tax cuts tend to
result in more people selling assets for gains, but not so much as
to offset the lost tax revenue, he said.
Zidar said he is skeptical of claims that Missouri's capital gains
tax repeal will attract a lot of investment and economic activity.
“I think it’s going to be a substantial revenue decrease,” he said.
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