People who earn money from selling stocks, property, and other assets might soon earn even more in Missouri. This state is planning to be the first in the U.S. that will not tax the money made from these sales.

A new law agreed on Wednesday would stop the tax on money made from selling investments for people this year. It might even remove this tax completely for companies if the state's income keeps going up. The idea to get rid of the tax will now go to the Republican Governor, Mike Kehoe, who has said he is very much in favor of it.

Supporters hope it will help the economy, but critics say that ending the tax on investment profits will mostly help rich people. They also say it will mean less tax money for schools and public services. The Republican politicians passed the law even though the Democrats were against it. They did this only after adding more tax breaks for older and disabled people. They also removed the sales tax on things like diapers and products for women.

Missouri has a special rule about income tax. This is happening while governments in at least eight other states, led by Republicans, have made income tax lower this year. Also, Congress is thinking about continuing or increasing tax breaks from when Donald Trump was president.

What is a tax on profits from selling assets?

Capital gains are the profit you make when you sell things like stocks, cryptocurrency, or property. The government taxes these profits at a lower rate if you have owned the asset for over a year.

In the United States, most states that tax the money people earn from their jobs also tax the money they make from selling things like stocks or property. Missouri is one of 32 states, including Washington D.C., where this money from selling things is taxed at the same rate as money from jobs. But, eight states tax this money from selling things at a lower rate.

Some states led by Democrats are doing the opposite. For example, Maryland recently passed a law to add a 2% tax on money made from selling investments for people who make over $350,000. Washington also passed a law to add another 2.9% tax on money made from selling investments over $1 million. Minnesota already has an extra tax on money made from selling investments and other income over $1 million.

Why should the tax on profits from selling things like stocks or property be removed?

People who want to get rid of the capital gains tax say it stops people from investing. They also say it makes people keep their assets instead of selling them and using the money in other parts of the economy.

"When you tax something, people do less of it," said Jonathan Williams, an expert at a group that supports conservative ideas. "So, if you tax investing in your state, people will invest less. You want more investment in your state."

ALEC has supported getting rid of state taxes on profits from selling things for a long time. But, Missouri House Speaker Pro Tem Chad Perkins said he got the idea last year from friends who work at a construction company owned by its employees. These friends were being affected by the tax. He also said his proposed law could help family farmers who want to sell their land.

Republican state Senator Curtis Trent, who supported the bill, said that the tax on profits from selling assets leads to fewer economic chances, slower financial progress, and lower pay. He thinks this makes Missouri less able to compete both within the US and with other nations.

Who would gain from ending the tax?

People who disagree say the richest will benefit most.

Sam Waxman, who is the deputy director of state policy research at the Center on Budget and Policy Priorities, said that ending Missouri's tax on profits from investments would be a "worrying example" for the whole country. He also said it would "make economic and racial inequality worse."

A government study showed that white families are more likely to benefit from lower tax rates on investments than some minority groups.

In 2022, about 542,000 people in Missouri who pay income tax made money from selling things like stocks or property. This was only 20% of all taxpayers. The Missouri Budget Project, a group against removing this tax, thinks that if the tax is taken away, most of the tax money saved (80%) would help the richest 5% of taxpayers.

How much money would the government lose if they stopped taxing the profit from selling investments?

Experts who study laws believe that if Missouri stops taxing profits from selling things like property, it could cost the state around $262 million each year when it is fully started. But people who are for and against the idea don't agree with this number.

The Missouri Budget Project thinks the cost might be around $600 million every year.

Trent believes that if the tax is removed, the economy will improve, leading to more tax income over time.

Owen Zidar, a professor at Princeton University, looked at how 584 changes to taxes on profits from selling things like stocks or property affected states over 40 years. He said that when these taxes are lowered, more people sell these things to make money. However, the extra sales don't bring in enough tax money to make up for what the government loses.

Zidar said he doubts that getting rid of Missouri's tax on investment profits will attract much new investment and business.

"I think our income will significantly decrease," he said.