Missouri could eradicate the capital gains tax on crypto, stocks, real estate, etc.

Missouri, the U.S.’s geographical heartland, is about to make history with a bill that abolishes age-old taxes the citizens have been paying for over a century. Investors who yield profits selling real estate, cryptocurrency, stocks, and several other asset classes could reap even bigger benefits in Missouri once Governor Mike Kehoe signs the bill. The 58th governor of the state, Kehoe, has explicitly and publicly endorsed this idea. Following its final passage in the Missouri legislature, House Bill 594 would introduce a full income tax deduction for all capital gains, encompassing capital assets ranging from stocks to real estate to cryptos like Bitcoin and XRP. 

A possible expected impact is rising demand in cryptos like the ones mentioned above, as well as a bolstered Bitcoin and XRP price prediction. Investors in Missouri would have a stronger financial incentive to buy and hold cryptos since profits wouldn’t be taxed at the state level – as it can be the case with the rest of non-taxable investments. Supporters say the move will bring more investment to Missouri and help create jobs and grow the economy.

So, what does the new bill mean for the state? 

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Breaking down the House Bill 594

A few U.S. states don’t impose personal income taxes; therefore, they don’t tax capital gains. However, Missouri's recent legislation stands out because it explicitly exempts capital gains from state income tax while still maintaining a broader income tax system. 

The House Bill 594, shortened HB594, authorizes a 100% state income tax deduction for capital gains income reported on federal returns, effective for tax years starting with the current one. This means that Missourians could deduct all capital gains income from their state taxable income, boosting their net gains. This move positions Missouri as the first state to entirely exempt profits from the sale of capital assets such as stocks, real estate, crypto, and others from state income tax. Nevertheless, it's important to note that the exemption for corporations depends on future state revenue growth, with projections indicating that corporate returns may remain taxable for the foreseeable future.

In summary, Missouri's HB 594 is a significant policy shift as it seeks to eradicate the state income tax on capital gains. However, the state keeps levying income taxes on other income types. 

About victories and lessons learned 

Rarely has the U.S. seen a legislative session that’s not characterized by Republican conflicts. The majority of the Republican Party has managed to strengthen relationships and collaborate for the better part of the year. They passed a $53BN state budget, introduced two planned constitutional amendments on voting ballots, and sent 49 bills to the governor for approval. On a similar note, Gov. Kehoe achieved the bulk of high-priority goals made earlier, including House Bill 594 (HB594), which seeks to lessen the financial burden on investors following profit gains. 

The 10 Democrats out of the Senate’s 34 have been monitoring the now-unified Republican Party's efforts to abolish capital gain taxes for months, and the examination continues.

Positive industry feedback and support

State Representative Chad Perkins, a sponsor of the bill, highlighted the project’s potential to cultivate a more reasonable tax system that encourages growth and helps investors maximize their profits. In his view, the bill is a favorable step forward that will enhance both the state's economic outlook and Missourians’ financial security.

Missouri State Senator Curtis Trent emphasizes that the bill is designed to promote economic expansion and improve the state’s appeal as a destination for business investment and job creation. At the same time, Representative George Hruza highlights the bill’s potential to bring corporate investment and allow more Missourians to maximize their earnings. When it comes to the Associated Industries of Missouri, the oldest, statewide business association, sees the tax repeal as a big win for businesses, arguing that eliminating the capital gains tax will ease the financial burden on companies, with a focus on those reinvesting in assets or equipment. 

Supporters of eradicating the capital gains tax argue that the tax deters investment and pushes investors to hold on to assets instead of cashing out on them and using up the profits elsewhere in the economy.

Who might benefit from the bill? Opponents bet on the already-wealthy

Many states have introduced selective tax relief or slashed income tax rates, with the friendliest choices for investors including Texas, South Dakota, and Nevada, to name a few. However, none has gone as far as Missouri in completely eradicating individual capital gains from forms of state taxation. The move, while backed by some, generated an expected share of controversy, too.

Some critics say that the wealthiest will reap the best benefits from this legislation. Eliminating the state’s capital gain tax could create a worrying precedent nationally, possibly exacerbating racial and economic injustices, according to CBPP Deputy Director of State Policy Research Sam Waxman. This affluent group, comprising the top 5% of earners, is more likely to report substantial capital gains. Moreover, high-income, white households report varying rates of capital gains, which boosts concerns about economic and racial imbalance.

Fiscal impact emerges, too. Estimates suggest the bill’s enactment could reduce the state’s general revenue by over $100MN annually, with some projections going as far as $262MN. Opponents worry that the potential revenue loss could strain the state budget and threaten funding for key public areas like infrastructure and transportation. Sen. Maggie Nurrenbern, Rep. Emily Weber, and Rep. Raychel Proudie are some of the public figures criticizing the bill, in addition to Sam Waxman.

Wrapping it up

Missouri’s move to eliminate the state capital gains tax for individuals marks a bold and unprecedented tax policy change. Supporters consider it good for stimulating investment, attracting wealth, and positioning the state as a competitive hub for economic growth. 

As the policy rolls out, all eyes are on Missouri to see whether this initiative delivers on its promises—boosting the economy without widening inequality or draining public resources. The stakes are high, so stay tuned!

(Disclaimer: Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)