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

A new law approved on Wednesday could stop the tax on profits from selling things this year for individuals. It might also get rid of it for companies if the state's money keeps increasing. The plan to end the tax will now go to the Republican Governor, Mike Kehoe, who has said he strongly supports it.

Supporters hope this will help the economy, but critics say that removing the tax on investment profits will mostly benefit rich people and mean less tax money for schools and public services. The Republican government passed the bill despite Democrats' objections, but only after adding bigger tax breaks for older and disabled people and removing the sales tax on items like diapers and products for women.

Missouri has a special income tax rule. This is happening at the same time that Republican politicians in at least eight other states have agreed to lower income tax rates this year. Also, the US Congress is thinking about whether to continue and increase the income tax help that started when Donald Trump was first president.

What is a tax on the profit you make when you sell something like property or shares?

Capital gains are the money you make when you sell things like stocks or property. If you own these things for more than a year, the government taxes this money at a lower rate than your normal income.

In states that tax income, they usually also tax the money you make from selling things like stocks. According to the Tax Foundation, 32 states and Washington D.C. tax this money at the same rate as your salary, while eight states tax it 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 high incomes, and Washington created a new 2.9% tax on large investment profits. Minnesota already has an extra tax on big investment earnings.

Why should we stop taxing the money you make from selling things like property or stocks?

People who want to remove the capital gains tax say it discourages investment. They also say it makes people keep assets instead of selling them and spending the money in other parts of the economy.

Jonathan Williams, who is in charge of a group called the American Legislative Exchange Council, said, "When you tax something, people do less of it. The main point is that you want more businesses to invest in your state."

ALEC has supported getting rid of state capital gains taxes for a long time. However, Chad Perkins, a leader in the Missouri House, said he got the idea last year from friends at a construction company owned by its employees. These friends were having problems with the tax. Perkins also said his proposed law could help family farmers who want to sell their land.

Republican state Senator Curtis Trent, who managed the bill in the Senate, said that taxing profits from selling assets leads to "missed economic chances, financial difficulties, and lower wages." He added that this makes Missouri less able to compete both within the state and with other countries.

Who would gain from ending the tax?

People against the plan say rich people will benefit the most.

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

A government report found that white families are more likely to earn money from investments than some minority families. For middle-income taxpayers, about 8% of white families benefited from the government's tax rates on investment profits, while only 3% of Black families and 1% of Hispanic families did, according to a 2023 report.

In Missouri, around 542,000 taxpayers who pay income tax had capital gains in 2022. This was only 20% of all people who filed taxes, according to the Missouri Budget Project. This group does research and is against getting rid of the capital gains tax. They believe that 80% of the tax savings would benefit the richest 5% of taxpayers.

How much money would the government lose if they stopped taxing the profit from selling things like houses or company shares?

Experts who study laws in Missouri believe that removing the tax on profits from selling assets like property or stocks could cost the state about $262 million every year once it is fully in place. However, both those who support and those who oppose this change disagree with this estimate.

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

Trent believes removing the tax will cause the economy to grow more, which will bring in more tax money over time.

Owen Zidar, a professor at Princeton University, looked at how 584 changes to taxes on profits from selling property or investments affected states over 40 years. He said that when these taxes are cut, more people sell things for a profit, but the government doesn't collect enough extra tax money to cover the money they lose.

Zidar said he isn't sure that removing the tax on investment profits in Missouri will bring in a lot of investment and business.

"I think there will be a big drop in money coming in," he said.