People who make money from selling stocks, property, and other things in Missouri might soon get to keep more of that money because the state is planning to stop taxing this kind of income.

A new law that was agreed on Wednesday would stop the tax on profits from investments this year for individuals. It could also end it completely for companies if the state's income keeps going up. The plan to get rid of the tax will now go to Republican Governor Mike Kehoe. He has said he supports it a lot.

Supporters hope it will help the economy, but opponents argue that getting rid of the capital gains tax will mostly benefit rich people and lead to less tax money for schools and public services. The Republican-controlled government managed to pass the law despite the Democrats' objections, but only after they added bigger tax breaks for older and disabled people, and removed sales tax on diapers and products for women.

Missouri has a special rule for income tax. This is happening while at least eight other states with Republican leaders have lowered their income tax rates this year. It's also happening as Congress considers whether to continue and increase tax breaks that were put in place during President Donald Trump's first time in office.

What is a tax on profit from selling assets?

Capital gains are the money you make when you sell things you own, like stocks or property. If you keep these things for over a year before selling, the government taxes that money at a lower rate than your regular income.

In states where you pay income tax, you also pay tax on capital gains.

Some states with Democratic leaders are doing the opposite. For example, in Maryland last month, politicians approved a law to tax investment profits at 2% for people who earn over $350,000. Also, politicians in Washington recently approved a law to add a 2.9% tax on investment profits over $1 million. Minnesota already has an extra tax on investment profits and other money from investments over $1 million.

Why should we get rid of the capital gains tax?

People who want to remove 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 tend to do less of it," said Jonathan Williams, a leading economist at a group of conservative politicians and companies. "The aim is, of course, to get more businesses to invest in your state."

ALEC has supported getting rid of state taxes on money made from investments for a long time. However, Missouri House Speaker Pro Tem Chad Perkins said he thought of the idea last year after talking to friends who work at a construction company owned by its employees. These friends were having problems with the tax. He also mentioned that his proposed law could be good for family farmers who wish to sell their property.

Republican state Senator Curtis Trent, who managed the bill in the Senate, stated that the tax on capital gains causes "lost economic chances, financial problems, and lower wages." He also mentioned that this makes Missouri less competitive in the US and globally.

Who would gain from stopping this tax?

People who are against it say that rich people will benefit the most.

Sam Waxman said that getting rid of Missouri's tax on certain profits would be a worrying example for the whole country and make economic and racial unfairness worse.

A government study showed that white families are more likely to earn money from investments than some minority groups. Among people with average incomes, about 8% of white families paid lower taxes on this investment money, while only 3% of Black families and 1% of Hispanic families did, according to a report from 2023.

In Missouri in 2022, around 542,000 people who paid income tax said they made money from selling assets. This was only 20% of all taxpayers. A research group called the Missouri Budget Project, which is against removing the tax on these profits, says that most of the tax savings (80%) would benefit the richest 5% of taxpayers.

How much money would the government lose if they stopped taxing the profit from selling property or shares?

Experts who study laws believe that if Missouri stops taxing the money made from selling things like stocks, the state might lose around $262 million every year once the change is fully in place. However, both those who support and those who are against the idea do not agree on this amount.

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

Trent thinks that removing the tax will cause "more economic growth, which will mean more tax money" over time.

Owen Zidar, a professor at Princeton University, looked at how 584 changes to capital gains tax rates in states affected things over 40 years. He said that when these taxes are lowered, more people sell their assets to make money. But this doesn't happen enough to make up for the tax money the government doesn't collect.

Zidar said he is not sure if getting rid of Missouri's tax on money made from investments will bring in a lot of new investment and business.

He predicted a significant drop in revenue.