Missouri is poised to make history as the first US state to exempt capital gains from its income tax, a move that could significantly benefit investors in the cryptocurrency space.
Capital gains tax applies to profits made from the sale of assets, including crypto assets. The federal government taxes long-term capital gains—profits from assets held for more than a year—at a lower rate than ordinary income.
Proponents of the repeal argue that removing the capital gains tax will encourage investment and stimulate economic activity, particularly in the burgeoning cryptocurrency market.
Jonathan Williams, president and chief economist at the American Legislative Exchange Council, asserts that taxing investments discourages individuals from selling assets and reinvesting their profits. By eliminating this tax, Missouri could attract more crypto investors looking for a favorable regulatory environment.
Senator Curtis Trent, who sponsored the bill, emphasized that the capital gains tax hampers economic growth and makes Missouri less competitive in attracting tech-savvy investors.
Despite the potential benefits, critics argue that the capital gains tax repeal could exacerbate economic inequalities, particularly in the context of cryptocurrency ownership.
The Missouri Budget Project estimates that around 542,000 individual income taxpayers reported capital gains in 2022, with 80% of the tax relief expected to go to the wealthiest 5%.
The financial implications of repealing the capital gains tax are significant for Missouri’s burgeoning crypto sector. Legislative researchers estimate that the repeal could cost the state about $262 million annually once fully implemented, although some estimates suggest the figure could be nearly $600 million.
Critics, including economists, worry that while the repeal may initially attract more investors and stimulate the market, the long-term revenue loss could hinder public services and infrastructure.
Featured image from DALL-E, chart from TradingView.com
