People who make money from selling stocks and property might soon pay less tax on these profits in Missouri.

A new law, approved on Wednesday, would stop the tax on profits from selling assets for individuals this year. If the state continues to earn more money, this tax could even be removed for companies in the future. This tax change will now go to Governor Mike Kehoe, a Republican, who has stated he strongly supports it.

Supporters think it will help the economy, but critics say that getting rid of the tax on profits will mostly help rich people and mean less money for public schools and services. The Republican government passed the bill even though Democrats were against it. They were only able to do this after adding more tax help for older and disabled people, and removing sales tax on diapers and products for women.

Missouri's special income tax rule is happening at the same time as Republican politicians in at least eight other states have approved typical income tax cuts this year. Also, Congress is thinking about continuing and increasing income tax benefits that began when President Donald Trump was first in office.

What is the tax on profit from selling assets?

When you sell things you own, like stocks or property, and make a profit, this is called a capital gain. If you owned the item for over a year, the government taxes this profit at a lower rate than your usual income.

In the US, if a state taxes your income, it usually also taxes the money you make from selling things like property or stocks. This is called capital gains. Missouri is one of 33 states where this money is taxed at the same rate as your regular pay. But in eight states, this money is taxed at a lower rate.

Some states led by Democrats are doing the opposite. For example, Maryland recently passed a law for a 2% tax on large investment profits for people earning more than $350,000. Also, Washington state passed a law for an extra 2.9% tax on investment profits over $1 million. Minnesota already has a similar extra tax on large investment profits.

Why should we remove the tax on profit from selling assets?

People who want to get rid of the tax on profits from selling things like stocks or property say it stops people from investing. They also say it makes people keep their assets instead of selling them and spending the money in other ways in the economy.

"When you tax something, you get less of it," said Jonathan Williams, who leads a group of conservative politicians and businesses. "The goal is to get more investment in your state."

ALEC has always supported getting rid of state taxes on profits from selling things. But Missouri House Speaker Pro Tem Chad Perkins said he got the idea last year from friends at a construction company owned by its workers. This company was affected by the tax. He also said his suggested law could help farmers who own land and want to sell it.

Republican state Senator Curtis Trent said that the tax on profits from selling assets causes economic problems and lower wages. He thinks this makes Missouri less competitive in the US and other countries.

Who would gain from stopping the tax?

Critics argue that rich people will benefit most.

Sam Waxman, who works at the Center on Budget and Policy Priorities, said that getting rid of Missouri's tax on money made from investments would be a bad example for the whole country and would make economic and racial inequality worse.

A government study found that white families were more likely to make money from investments than some minority groups. The study showed that about 8% of white families with average incomes paid lower taxes on this money, 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 people who filed taxes, according to a research group that is against getting rid of the capital gains tax. This group believes that 80% of the tax savings would go to the richest 5% of taxpayers.

How much money would be lost if the tax on profits from selling things like property or stocks was stopped?

Experts think that getting rid of a tax in Missouri might cost the state about $262 million every year when it's completely started. However, people who support it and people who are against it don't agree with this number.

The Missouri Budget Project believes the yearly cost could be almost $600 million.

Trent thinks that if the tax is removed, the economy will 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 taxes on investments affected states over 40 years. He said that when these taxes were cut, more people sold investments and made money, but the government still lost tax money overall.

Zidar said he's not sure if getting rid of the capital gains tax in Missouri will bring in a lot of investment and business.

"I think the money coming in will drop a lot," he said.