Missouri Could Soon Eliminate Income Tax but Increase Sales Taxes: Who Pays and Why It Matters Now
After eliminating its state capital gain tax last year, Missouri is now considering a far larger tax shift. Could this serve as a test case for other states?
Missouri is moving toward a major tax decision that could be decided by voters: whether to essentially eliminate the state income tax and replace much of that revenue with higher sales taxes.
The stakes are significant. Missouri’s individual income tax raises roughly $8.5 billion to $9 billion each year — about 60% to 65% of state general revenue — and is the largest source of funding for schools, public safety, and core state services. If the income tax is phased out, most of that revenue would likely be replaced through expanded reliance on sales taxes.
Missouri’s move comes as several other states, including Kentucky, Mississippi, and Oklahoma, have also cut or plan to phase out their income taxes, making the Show-Me State part of a growing national debate over how much states should rely on income taxes.
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A central question for voters is this: with no state income tax, who really ends up paying more, and how much will it cost households at the register?
Missouri income tax elimination could follow capital gains tax change
Missouri’s willingness to make sweeping tax changes was already on display last year when it eliminated state taxes on capital gains.
- As Kiplinger reported, that policy, effective as of the 2025 tax year, removed taxes on profits from stock, bond, and other investment sales.
- The measure reportedly cost the state roughly $300 million to $500 million in annual revenue, depending on market conditions.
Now, the question is whether Missouri will go further and end the broad‑based income tax altogether.
As mentioned, Missouri’s individual income tax accounts for roughly 8 billion dollars a year and helps fund schools, public safety, and many core state services. If the income tax is phased out, most of that revenue would need to be replaced by a greater reliance on sales taxes and other changes to the state budget.
Meanwhile, Missouri’s current state sales tax rate is 4.225%, according to the Department of Revenue, though many residents pay more once local taxes are added.
Under the leading proposals, the state would gradually reduce the income tax over several years, with reductions tied to revenue triggers intended to avoid sudden budget chaos.
Missouri Income tax rate 2026: What a change would mean for residents
Right now, Missouri's 2026 individual income tax tops out at 4.7% on taxable income over $9,436 (Single filers; brackets start at 0% up to $1,348, then climb in approx. 0.5% steps).
If the no-income tax plan advances, the practical impact for most Missouri households would be:
- Lower withheld income tax and higher take‑home pay, especially for wage earners
- Higher prices on many goods and services if sales tax rates rise or the taxable base expands
- A shift from being taxed primarily on earnings to being taxed more on spending
Because sales taxes are collected at the register, many residents would feel the tax burden on a daily basis, and many say the ultimate effect would also be uneven.
That's because studies show that households with lower and middle incomes, which often spend a larger share of their income on taxable goods and services, would likely feel the change more heavily than wealthier households whose income is typically more tied to savings or investments.
Proponents and critics: Who wins and who pays
Supporters of the income‑tax‑to‑sales‑tax shift argue that the measure would make Missouri more competitive with no‑income‑tax states like Texas and Florida, reduce reliance on taxing wages, and simplify the tax code over time.
They point to the recent elimination of capital gains taxes as proof that the state is comfortable shifting away from taxing certain forms of income and moving toward a more investment‑friendly system.
Gov. Mike Kehoe has become a leading supporter of phasing out Missouri’s income tax.
In his 2026 State of the State address and subsequent public comments, Kehoe called for the plan to be placed before voters through a constitutional amendment.
He has argued that Missouri’s tax structure "should modernize for the times we’re in and not be burdened by a tax code written in another era," framing the income‑tax elimination as a central part of his economic agenda.
However, some opponents of the measure, including the nonprofit Missouri Budget Project (MBP), warn that replacing roughly $8.5-$9 billion in annual income-tax revenue with higher sales taxes will sharply increase tax rates and potentially force cuts to essential public services.
In a piece on its website regarding the impact of such a proposal on the state's rural communities, MBP writes the following.
"Missouri’s income tax supports nearly 2/3 of Missouri’s state general revenue budget – a critical state funding source for K-12 schools, mental health services, children’s services like childcare and foster care, and services for older adults like Meals on Wheels and respite care. There’s simply no realistic way to make up the revenue lost from eliminating the income tax – meaning harmful cuts to services for Missourians."
- A key argument is that sales‑based taxes tend to fall more heavily on lower‑income households
- That could deepen inequality and make the state's tax system less progressive.
Also worth noting: Missouri’s experiment could also influence how other states frame their own debates over reliance on income taxes, especially as more states look to cut or phase out their personal income tax.
Missouri income tax elimination bill: What happens next
The measure, HJR 173/174, has passed both legislative chambers and awaits Gov. Kehoe's decision by May 22 on whether to place it on the November ballot.
- If it goes to voters, a "yes" vote would begin a multi‑year phaseout of the income tax and a gradual pivot toward relying more on sales taxes.
- That could mean modestly lower income‑tax bills for many households, but also higher everyday costs at the register, especially for those who spend the largest share of their income on taxable goods and services.
For residents, the core takeaway is this: Missouri gave itself a trial run on big tax changes by eliminating capital gains taxes last year. If approved, this next step could be even bigger.
Missouri’s experiment could also influence how other states frame their own debates on income taxes, especially as more look to cut or phase out personal income tax. So, stay tuned.
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