JEFFERSON CITY, Mo. (AP) — People who make money from selling things like stocks or houses might soon pay less tax in Missouri. The state could be the first in the U.S. to not tax this kind of profit.

A new law approved on Wednesday will stop the tax on profits from investments this year for people. It could also remove it later for companies if the state earns more money. The plan to remove the tax now goes to Governor Mike Kehoe, a Republican, who has said he is very much in favor of it.

People who support the change hope it will help the economy, but those against it say that removing the tax on profits will mostly help wealthy people and mean less money for schools and public services. The politicians from the Republican party were able to pass the change, even though politicians from the Democratic party disagreed. This happened because they added more tax benefits for older and disabled people and removed the sales tax on things like diapers and products for women.

Missouri has a special income tax rule. This is happening while at least eight other states, led by Republicans, have already lowered their income tax rates this year. Also, Congress is deciding if they should continue and make bigger the income tax cuts that started when Donald Trump was president.

What is a tax on profits from selling assets?

Capital gains are the money you make when you sell things you own, like stocks or property. The government taxes this money. But if you own the asset for over a year, the tax rate on the profit is less than the tax on your normal income.

In states that tax income, the money made from selling things like stocks or property is usually taxed. In Missouri, and in 32 other states and Washington D.C., this money is taxed at the same rate as salaries. But, eight states tax this kind of money at a lower rate.

Some states with Democratic leaders are doing the opposite. For example, Maryland recently passed a law to add a 2% tax on money made from investments for people earning over $350,000. Washington also recently added an extra 2.9% tax on money made from investments over $1 million. Minnesota already has an extra tax on money made from investments and other money from investments over $1 million.

Why should we remove the tax on profits from selling investments?

People who support getting rid of the capital gains tax say it stops people from investing and makes them keep assets instead of selling them and spending the money in other parts of the economy.

"When you tax something, you get less of it," said Jonathan Williams, who works for a group called the American Legislative Exchange Council. "The goal is to have more companies put money into your state."

ALEC has supported getting rid of state capital gains taxes for a long time. But, Missouri House Speaker Pro Tem Chad Perkins said he thought of the idea last year. He heard it from friends who work at a construction company owned by its employees. These friends were having problems with the tax. Perkins also said his suggested law could help family farmers who want to sell their land.

Republican state Senator Curtis Trent said that the tax on profits from selling assets leads to "lost economic opportunity, financial problems, and lower wages." He thinks these things make Missouri less competitive in the US and around the world.

Who would gain from getting rid of the tax?

People who disagree say rich people will gain the most.

Sam Waxman, who works at the Center on Budget and Policy Priorities, said that getting rid of the tax on investment profits in Missouri would be a worrying example for the rest of the country and would make economic and racial inequality worse.

A government study found that white families are more likely to make money from investments than some minority groups. For families with average incomes, about 8% of white families paid less tax on their investments, while only 3% of Black families and 1% of Hispanic families did.

In Missouri, about 542,000 people who pay income tax reported capital gains in 2022. This was only 20% of all taxpayers, according to the Missouri Budget Project. This group is against removing the capital gains tax. They think that 80% of the tax savings would go to the richest 5% of taxpayers.

How much will it cost to remove the tax on profits from selling things you own?

People who study laws believe that if Missouri stops taxing profits from selling assets, it could cost the state about $262 million every year once it is fully in place. But both those who support and oppose the change disagree with this number.

The Missouri Budget Project thinks the cost might be almost $600 million each year.

Trent thinks that if the tax is removed, it will cause the economy to grow more, and this will bring in more tax money over time.

Owen Zidar, a professor at Princeton University, looked at how 584 changes to the tax on profits from selling investments affected states over forty years. He found that when this tax is lower, more people sell their investments for a profit. However, the government doesn't collect enough extra tax money to make up for the lower tax rate.

Zidar said he doesn't believe that removing Missouri's capital gains tax will attract much investment and economic activity.

"I think we will see a big drop in how much money we make," he said.