Key Takeaways:
Missouri is set to become the first U.S. state to completely exempt capital gains from income tax, pending the governor’s signature. The measure applies to profits from assets such as stocks, real estate, and cryptocurrency, retroactive to 2025. The bill includes expanded exemptions for seniors, disabled residents, and select consumer goods to gain broader support.Missouri is on track to become the first U.S. state to fully exempt capital gains from income taxation, following the state legislature’s final approval of a bill on May 7.
According to a May 8 report published by Fortune, the legislation, which is now awaiting the governor’s signature, would end capital gains taxes for people this year and could extend to corporations if revenue targets are met.
Missouri Bill Targets Taxes Across Asset Classes
The measure would cover profits from the sale of stocks, real estate, cryptocurrencies, and other assets. It arrives amid broader debates about state-level tax policy, with other Republican-led states opting for more traditional income tax cuts.
Supporters of the Missouri bill argue that repealing the tax will remove barriers to investment and encourage economic activity.
“When you tax something, you get less of it,” said Jonathan Williams, chief economist at the American Legislative Exchange Council. “The idea is, of course, you want more investment in your state.”
Democrats criticized the bill for disproportionately benefiting high-income earners and diverting funds from public services. To pass the bill, Republican sponsors added provisions expanding exemptions for seniors, people with disabilities, and essential goods like diapers and feminine hygiene products.
Capital Gains Tax Becomes Battleground in State Policy Shifts
According to the Missouri Budget Project, only about one-fifth of state taxpayers reported capital gains in 2022. The group estimates that 80% of the tax relief would benefit the top 5% of earners.
State estimates place the potential annual cost of the exemption at $262 million, though outside analysis suggests it could approach $600 million. While backers anticipate offsetting growth, researchers such as Princeton’s Owen Zidar say there is little evidence that tax repeals spur enough activity to cover lost revenue.
Governor Mike Kehoe has expressed support for the measure and is expected to sign it. If enacted, the policy would take effect retroactively for the 2025 tax year.
Capital gains tax policy has become a growing point of divergence between states, with blue and red legislatures taking sharply different approaches.
While Missouri is moving toward full exemption, states like Maryland, Minnesota, and Washington are expanding surtaxes on high-value asset sales. These opposing trends reflect broader political disagreements over how investment income should be taxed and who should benefit from tax policy.
At the federal level, debates around capital gains are expected to intensify ahead of the expiration of the 2017 Tax Cuts and Jobs Act provisions. If Missouri’s approach gains traction, other states may adopt similar strategies, especially as they compete for mobile wealth tied to stocks, property, and crypto holdings.
Frequently Asked Questions
Capital gains taxes often represent a small but volatile portion of state income tax revenues. In some states, they make up under 5%, but that figure can spike during market booms, making it a less stable revenue source.
Wealthy people may relocate to states with favorable tax laws. While concrete data is limited, anecdotal evidence suggests that tax havens can attract both investors and wealth managers.
Yes. Countries like Belgium, Singapore, and New Zealand have no capital gains tax on certain assets, though many impose alternative taxes or have narrower exemptions.
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