“Revenue-Neutral”? What the Capital Gains Cut Taught Us

• Supporters call Amendment 5 “revenue-neutral” — the state would take in about the same money, so schools wouldn’t lose. But “revenue-neutral” is a forecast. And Missouri just watched a forecast like it go badly wrong.
• The capital gains lesson: Last year Missouri stopped taxing capital gains (profits from selling stocks and assets). The official estimate put the cost in the low hundreds of millions — around $111 million a year.
• The reality: Estimates climbed sharply. The state’s budget director later projected about $500 million this year, and one fiscal-note estimate ran as high as ~$625 million. The figures range widely and kept rising — that uncertainty is the point.
• Why it matters: The same kind of forecast underpins Amendment 5’s “revenue-neutral” promise — on a change far bigger (the whole income tax, about two-thirds of state revenue). If a smaller change was this hard to forecast, the bigger promise deserves real scrutiny.
• Who absorbs a miss: Schools are especially exposed — their costs are locked a year ahead. This year a ~$138 million shortfall in one fund led to a ~$245-per-student mid-year reduction districts couldn’t claw back. (A separate pot from Amendment 5, but the same kind of risk.)
• Bottom line: “revenue-neutral” is a forecast — the kind Missouri just struggled to pin down on a smaller change. The burden of proof sits with the promise.

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The Full Story: The forecast-miss case study

Supporters of Amendment 5 say the tax swap would be “revenue-neutral” — the state would take in about the same amount as before, so services like schools wouldn’t lose funding. It’s a reassuring promise. The catch is that “revenue-neutral” is a forecast, a prediction about the future. And Missouri just watched a much smaller tax change produce forecasts that ranged enormously and kept climbing. That recent experience is worth examining before trusting a forecast on a far bigger change.

What happened with capital gains

First, a quick definition. A capital gain is the profit you make when you sell something for more than you paid — most often stocks or other investments. Last year, Missouri passed a law to stop taxing capital gains, becoming the first state in the country to fully exempt them.¹

When lawmakers voted, the official cost estimate was modest — reported in the range of about $111 million a year, with the fiscal note showing larger figures in later years (over $185 million in the first full year and rising past $260 million by 2031 under some scenarios).² But the estimate didn’t hold still. As the law took effect, projections climbed. One fiscal-note estimate ran as high as roughly $625.6 million, based on the roughly $13.3 billion in capital gains Missourians had reported in a single recent year.³

By December 2025, the state’s own budget director projected the cut would cost about $500 million for the current fiscal year, with ongoing losses around $360 million a year.⁴ Overall state revenue was running below the earlier forecast too — general revenue around $13.1 billion, down from $13.4 billion the prior full year.⁵

Here’s the honest way to state it: the estimates for this one tax change range from the low hundreds of millions to roughly $625 million, depending on the source and the year. They don’t agree, and they moved — mostly upward — as real data came in. That spread is the point. When a single, fairly narrow tax change produces forecasts this far apart, it’s a warning. It tells you how little confidence any revenue forecast can carry.

Why this matters for Amendment 5

Supporters describe Amendment 5 as a “revenue-neutral” swap. But “revenue-neutral” is itself a forecast — a prediction that new sales-tax money would match what the income tax brought in. And it’s a forecast about a change far larger than the capital gains cut. Amendment 5 would phase out the entire individual income tax — about two-thirds of state general revenue.⁶ Replacing that with sales tax could mean raising the general-revenue portion of the rate from 3% to as much as 11.5%, or taxing many new goods and services.⁷

So the question almost asks itself: if the forecasts for a smaller change ranged this widely and kept rising, how much weight should a “revenue-neutral” forecast carry on a change many times larger? If the prediction is off — in either direction — the gap would be measured in hundreds of millions. This isn’t a claim that Amendment 5 would blow a hole in the budget. It’s a caution that the central promise rests on exactly the kind of forecast Missouri has recently struggled to get right.

Who absorbs a forecast miss

When the state takes in less than expected, something has to give, and schools are especially exposed because their costs are locked in a year ahead. We saw a small version this year. The part of school funding tied to lottery, gaming, and cigarette taxes came up about $138 million short. So the state reduced funding by roughly $245 per student mid-year, and lawmakers dipped into Capitol-renovation money to cover part of the gap.⁸ That doesn’t prove Amendment 5 would cut schools — it’s a separate, earmarked pot. But it shows what a forecast miss does once a school year is underway: there’s no time to claw it back.

What remains unknown

The final cost of the capital gains cut is still settling, and the revenue effect of Amendment 5 can’t be known until lawmakers decide what to tax and at what rate. That uncertainty isn’t a reason to assume the worst — it’s a reason to be skeptical of anyone who claims to know the swap will come out even.