Missouri’s Tax Shake-Up: What’s at Stake

Written by David Dodge 

On April 29, 2025, the Missouri House of Representatives passed a tax reform bill by a 92-58 vote, aiming to reconcile differences with the Senate and deliver targeted tax relief. This legislation, described as a compromise by House Speaker Pro Tem Chad Perkins, focuses on exempting long-term capital gains from state income tax while expanding the circuit breaker tax credit for low-income seniors and individuals with disabilities. The bill now awaits final Senate approval before heading to Governor Mike Kehoe’s desk. Below, we explore the key provisions, debates, and potential impacts of this proposal, drawing from the original reporting by the Missouri Independent.

Key Provisions of the Bill

1. Capital Gains Tax Exemption

The bill proposes to eliminate state income tax on long-term capital gains, defined as profits from investments or property held for over a year. The fiscal note for the bill estimates this exemption will reduce state revenue by approximately $110 million annually from individual income taxes, with an additional $180 million reduction when corporate tax cuts are implemented. However, the Institute on Taxation and Economic Policy, a left-leaning think tank, warns that the revenue loss could reach $600 million or more, raising concerns about the state’s fiscal stability.

2. Circuit Breaker Tax Credit Expansion

To support low-income seniors and individuals with disabilities, the legislation enhances the refundable circuit breaker tax credit, which offsets property tax costs. The changes in the circuit breaker credit would increase the maximum credit for homeowners from $1,100 to $1,550 and for renters from $750 to $1,055. Additionally, the income eligibility thresholds would rise significantly:

• Single renters: From $27,500 to $38,200
• Single homeowners: From $30,000 to $42,200
• Married renters: Up to $41,000
• Married homeowners: Up to $48,000

This expansion is projected to reduce state revenue by about $75 million annually but is seen as a critical measure to assist vulnerable populations. Unlike the Senate’s version, this bill does not include inflation adjustments for the credit starting in 2027.

3. Other Notable Elements

The legislation initially included a provision allowing the Department of Revenue to forgive interest and penalties when prorating tax credits, such as the food pantry tax credit, which has been underfunded for three years. However, unlike the Senate-passed bill, it omits a sales tax exemption for diapers and feminine hygiene products, a point of contention in negotiations.

The Debate: Balancing Benefits and Risks

The bill sparked heated debate in the House, with Republicans and Democrats sharply divided. Supporters, like Rep. Mark Matthiesen (R-O’Fallon), argued that the circuit breaker expansion is a vital lifeline for seniors and those with disabilities, stating, “This is an amendment that our senior citizens need for us to do, as it truly helps those in the lowest income brackets.” House Speaker Pro Tem Chad Perkins expressed confidence that the Senate would accept the House’s version, noting, “We feel like the Senate will be able to pass our language on this as is.”

Democrats, however, raised alarms about the timing and scale of the tax cuts. Rep. Steve Butz (D-St. Louis) urged caution, citing economic uncertainties under President Donald Trump’s policies and potential reductions in federal funding. He warned, “Wait for another year. Let’s see what happens with the U.S. economy before we cut another tax.” Rep. Mark Boyko (D-Kirkwood) criticized the bill as prioritizing wealthy taxpayers, describing it as “the arsonist telling us that they’ll give us 10 seconds to go rescue the grandfather clock.”

Critics also highlighted Missouri’s recent tax-cutting trend. Since 2014, the state’s top income tax rate has dropped from 6% to 4.7%, with further reductions to 4.5% already legislated. The tax limitations in the Missouri Constitution mean that reversing these cuts would require a statewide vote, limiting future fiscal flexibility.

Potential Impacts and Next Steps

The bill represents a delicate balance between providing tax relief for low-income groups and offering significant benefits to wealthier taxpayers through capital gains exemptions. While the circuit breaker expansion has broad support, the capital gains exemption has drawn scrutiny for its potential to strain state revenues. The fiscal note’s estimate of $110 million in annual revenue loss contrasts sharply with external estimates of up to $600 million, underscoring the uncertainty surrounding the bill’s long-term effects.

As the bill moves to the Senate, its fate hinges on whether senators view the House’s version as a fair compromise. The absence of inflation adjustments for the circuit breaker and the diaper sales tax exemption may prompt further negotiations. If passed, the legislation could reshape Missouri’s tax landscape, but its success will depend on the state’s ability to navigate economic challenges in the coming years. 

For more details, refer to the original reporting by the Missouri Independent, published under a Creative Commons license (CC BY-NC-ND 4.0).

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