Missouri is on the verge of becoming the first state in the U.S. to remove capital gains from its income tax, a decision that could be particularly advantageous for cryptocurrency investors.

The recently passed legislation aims to eliminate this tax for individuals this year, with hopes to extend it to corporations as state revenues grow. The bill is now awaiting the approval of Governor Mike Kehoe, a Republican who supports the measure.

Transforming Missouri’s Crypto Landscape?

Capital gains tax is applied to profits from selling assets, including cryptocurrencies. Currently, the federal government applies a lower tax rate on long-term gains—profits from assets held longer than a year—compared to regular income.

At present, Missouri taxes capital gains at the same rate as other income, a policy similar to that of 32 other states and D.C. This proposed exemption could make Missouri a more attractive option for crypto investors, who frequently buy and sell digital assets.

Supporters of the repeal believe that removing the capital gains tax will boost investment and economic activity, mainly in the fast-growing cryptocurrency sector.

Jonathan Williams, president and chief economist at the American Legislative Exchange Council, argues that taxing investments deters individuals from selling and reinvesting. By eliminating this tax, Missouri could draw in more investors interested in the crypto market.

House Speaker Pro Tem Chad Perkins pointed out that the repeal would benefit not only traditional investors but also those involved in cryptocurrency trading and blockchain technologies.

Senator Curtis Trent, the sponsor of the bill, stated that the capital gains tax hinders economic growth and makes Missouri less attractive to tech-savvy investors.

Concerns from Economists About Long-Term Effects

While the repeal holds potential benefits, critics warn that it may worsen economic inequalities, particularly regarding cryptocurrency ownership.

A report from the U.S. Treasury Department indicated that wealthier families typically report capital gains, implying that the tax cut may predominantly benefit high-income individuals engaged in crypto trading.

The Missouri Budget Project estimates that about 542,000 individual income taxpayers reported capital gains in 2022, suggesting that 80% of the tax relief might go to the wealthiest 5%.

The financial impact of removing the capital gains tax is considerable for Missouri’s emerging crypto sector. Legislative estimates suggest the repeal could cost the state approximately $262 million annually once in effect, with some estimates claiming it might reach nearly $600 million.

Critics, including economists, express concern that while the repeal could initially attract investors and energize the market, the long-term revenue loss may negatively impact public services and infrastructure.

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