In doing so, Missouri would make history. Should it succeed, it would be the first time any state in the US exempted capital gains from its income tax. In the wake of the bill’s introduction, Republican state legislators have been vocal in their enthusiasm for the proposal. Now, it waits for approval from Governor Mike Kehoe, who is supportive of the measure. If enacted, this repeal would eventually cost the state about $262 million per year once fully implemented.
That’s because Missouri currently taxes capital gains at the same rate as wages and other income—3.25 percent. This policy makes the state only the 33rd to do so, joining that same number of states and the District of Columbia. In 2022, over half a million titlers—about 542,000—were filed by MoDOT, with individual income taxpayers in Missouri reporting capital gains. That’s about a fifth of all filers in the state.
Republican leaders in the Legislature were able to push through the repeal even after Democrats raised objections. They further enlarged that bill to offer other tax benefits exclusively to the community’s senior and disabled residents. In the face of that, they passed cab sales tax exemptions on necessity products—diapers and pads. This strategic move helped counteract some opposition concerns while moving Authorizing Tax Reform one step closer to adoption.
For those who have followed the broader policy debate on the implications of capital gains tax repeal, these changes should sound familiar. Sam Waxman, deputy director of state policy research at the Center on Budget and Policy Priorities, complained that this was a dangerous precedent. He cautioned that it would set “a troubling national precedent” and complicate current efforts to address economic and racial disparities.
Owen Zidar is a professor of economics and public affairs at Princeton University. He has probably spent four decades studying the impacts of capital gains tax rate changes. He continues to doubt that repealing this tax in Missouri will do much to attract investment or stimulate any real economic activity.
“When you tax something you get less of it.” – Jonathan Williams, president and chief economist at the American Legislative Exchange Council.
Republican state Senator Curtis Trent, who spearheaded the bill in the Senate, forecasts that the tax repeal will drive “increased economic growth (that) will translate into increased tax revenue” over time. Critics counter that according to estimates, 80% of the tax relief would go to the richest 5% of taxpayers.
The issue of equity in capital gains taxation is particularly acute across demographic lines. Analysis reveals that approximately 8% of white families among middle-income taxpayers benefited from federal tax rates on capital gains and dividends. Conversely, just 3% of Black families and 1% of Hispanic families enjoyed such benefits. A current government study found that white families disproportionately report capital gains. In contrast, groups that tend to make up minority communities report them far less often.
Missouri’s legislative action is particularly notable, coming as it does while state legislatures elsewhere are moving in the exact opposite direction. For example, Minnesota levies an additional capital gains tax (or a tax of other investment income) on all income over $1 million. In contrast, neighboring Maryland lawmakers just successfully enacted a 2% capital gains tax on people making more than $350,000.
