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Missouri’s Republican-led legislature has passed a sweeping tax bill that includes a major capital gains tax exemption, sending it to Governor Mike Kehoe for final approval. Despite also including property tax relief for seniors and people with disabilities, the bill passed without any Democratic votes in the Missouri House, with 10 Democrats voting “present” in protest.
Key Provisions of the Bill
1. Capital Gains Tax Exemption
- Individuals: Starting immediately, individuals will no longer pay income tax on profits from selling assets held longer than a year.
- Corporations: Will receive the same exemption only after the top individual income tax rate drops to 4.5%, which the fiscal note estimates may not occur until 2030.
- Estimated Revenue Loss:
- $430 million in the current fiscal year.
- $340 million annually thereafter.
- $110 million yearly from the individual exemption.
- $180 million yearly from the corporate exemption (once triggered).
2. Circuit Breaker Property Tax Credit Expansion
- Increases in Maximum Credit:
- Renters: From $750 to $1,055.
- Homeowners: From $1,100 to $1,550.
- Raises Income Eligibility:
- Renters: From $27,500 to $38,200.
- Homeowners: From $30,000 to $41,000.
- Indexing for Inflation: For the first time, both the credit amounts and income limits will adjust with inflation.
- Estimated Cost: $84 million in lost revenue.
3. Sales Tax Exemptions
- Applies to:
- Diapers
- Feminine hygiene products
- Removes 4.225% state sales tax (local taxes still apply).
- Estimated Cost: $37 million annually.
Political Context and Controversy
Republican Position:
- House Speaker Pro Tem Chad Perkins sponsored the bill.
- Argues the tax break will spur investment and economic growth.
- Sees potential inaccuracy in fiscal estimates, expecting gains from increased economic activity.
Democratic Opposition:
- Concerns about impact on state revenue at a time when Missouri is already facing a 2% revenue decline this fiscal year.
- Warns that the tax exemption disproportionately benefits wealthy individuals.
- In 2022, 65% of capital gains were reported by 0.8% of taxpayers earning over $500,000.
- Calls it a “giveaway to the rich” masked by targeted tax relief.
“They are talking about these eggs,” said Rep. Raychel Proudie. “Not capital gains tax.”
Implications
If signed into law:
- Missouri will join a small number of states offering capital gains tax exemptions.
- Critics warn of budget shortfalls and underfunded public services, including education.
- Supporters see it as a pro-growth, pro-investment policy that offers modest benefits to lower-income residents via credits and exemptions.
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