Illinois Gov. JB Pritzker speaks at a news conference October 06, 2025 in Chicago, Illinois (Photo by Scott Olson/Getty Images)
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Illinois lawmakers’ recent attempt to tax unrealized capital gains ultimately came up short. However, at the end of October, the Illinois Legislature sent another tax hike to Governor J.B. Pritzker’s (D) desk in the form of Senate Bill 1911, legislation that decouples the state tax code from the federal code’s provisions related to business expensing, which, thanks to the tax bill that President Donald Trump signed into law back in July, now provide for 100% year-one deduction for most business expenses and includes a new deduction for factory construction.
“The purpose, ultimately, is to make sure that we can pay the bills in the state of Illinois and not be hampered by Donald Trump and the big government bill,” Governor Pritzker told statehouse reporters after the passage of SB 1911. Should Pritzker sign the bill as expected, it would deny employers across Illinois the benefits of full business expensing—which they now enjoy for federal income tax purposes—when calculating their state tax liability, hiking their state tax bills by $250 million annually.
“Senate Bill 1911 would ‘decouple’ Illinois from historic federal relief efforts, which Republican lawmakers warn would make Illinois even less competitive at a time when other states are cutting taxes and attracting new investment,” said Illinois Senator Sue Rezin (R) in a November 5 statement. “Currently, Illinois faces one of the highest unemployment rates in the nation, and Senate Republicans say this new tax hike would only make matters worse. Every other state competing for factories, jobs, and new facilities is offering incentives to build, but decoupling sends a clear message that Illinois is closed for business.”
“This measure deprives Illinois manufacturers of important tax benefits that allow businesses to upgrade equipment, expand facilities and grow jobs,” added Illinois Manufacturers’ Association CEO Mark Denzler in a statement issued after the passage of SB 1911. “It represents yet another blow to our state’s manufacturing industry.”
“This change pushes Illinois’ corporate tax structure even further out of line when you compare it to other states,” said Maurice Scholten, president of the Taxpayer’s Federation of Illinois. “And we understand that lawmakers were trying to balance a difficult budget, but relying on higher business taxes every time revenue falls short can create a vicious cycle that ultimately weakens Illinois’ tax base in the long run.”
Governors and legislators in many states across the country will prove Scholten correct in 2026, as they seek to go in the opposite direction of Springfield by aligning their state tax codes with the new federal expensing provisions that permit full year-one deduction of capital and R&D expenditures, as well as the new deduction for factory construction. Lawmakers in Arkansas, Oklahoma, Mississippi, Tennessee, and other states have taken a very contrasting approach to Illinois. Not only did they pass legislation to permit bonus depreciation when calculating state tax liabilities, they did so before federal full business expensing was restored earlier this year.
“We’re putting our businesses at a competitive disadvantage again, by decoupling, while every other state that is still coupled to the federal tax law is going to see a savings for their business because the federal taxes have been lowered with us raising them again, which is essentially a tax increase,” Illinois Representative Dan Ugaste (R) said about the passage of SB 1911. While Illinois lawmakers were working to come up with new tax hikes that Governor Pritzker would sign, lawmakers in neighboring Missouri went in a different direction this year by passing House Bill 594, legislation that made their state the first to eliminate state taxation of capital gains.
Illinois Tried To Become First State To Tax Unrealized Gains As Missouri Became The First To End Taxation Of Capital Gains
Starting in the current tax year, enactment of HB 594 permits 100% deduction of capital gains when calculating state income tax. Representative George Hruza (R), who co-sponsored HB 594, says this reform will “turbocharge Missouri’s economy.”
“Conservative leadership is about keeping more money in the hands of Missouri families, and less in government coffers,” Governor Mike Kehoe (R-Mo.) said when signing HB 594 in July. “Today, we are protecting the people who make Missouri work—families, job creators, and small business owners—by cutting taxes, rolling back overreach, and eliminating costly mandates.”
“This legislation is about creating a fairer tax system that supports growth and empowers individuals to keep more of their hard-earned money,” Missouri Speaker Pro Tem Chad Perkins (R) said about HB 594. “I firmly believe this bill will have a great, positive impact on our state’s economy and the financial well-being of our citizens.”
Progressive critics of Missouri’s capital gains tax repeal, like the Missouri Budget Project, have attacked HB 594 as a “special-interest tax giveaway.” Yet those same critics also applaud the bill’s update to the property tax credit offered by the state, noting that it “will provide much-needed assistance to older adults and Missourians with disabilities who have fixed incomes.”
In addition to permitting 100% deduction of capital gains from state income tax starting in tax year 2025, HB 594 will also exempt corporate capital gains from state taxation, but only after the personal income tax rate falls to 4.5%. Missouri’s top marginal income tax rate currently stands at 4.7%.
“It is always a good thing when we can implement changes that put more money back into the pockets of hardworking Missouri citizens,” Director of Revenue Trish Vincent said in a statement announcing the Department’s implementation of HB 594, which, the Department noted, “makes Missouri the first state in the nation to completely exempt such tax for individual filers.” HB 594 also exempts broadband equipment and associated machinery from state sales tax.
“The taxpayer friendly renaissance is definitely alive and well in The Heartland and the laboratories of representative democracy in the Midwest states are proving how great competition is to creating more robust state level economies,” says Tim Jones, former Speaker of the Missouri House of Representatives. “While Illinois continues to find ways to hike taxes and convince more people to flee the once mighty Land of Lincoln, Missouri is doing all it can to keep up with the tax reform and tax cut efforts it sees being undertaken in its seven other neighboring states. Eliminating Missouri’s onerous capital gains tax will encourage more investment and prosperity in the Show-Me State and will help keep Missouri competitive with all of its red state neighbors who are pursuing similar economic growth encouraging measures.”
The tax bills recently passed in Missouri and neighboring Illinois underscore the contrasting approaches that red and blue states continue to take when it comes to fiscal policy, but the national implications of what happened in Missouri this year go beyond that. Missouri’s capital gains tax repeal demonstrates how, even though “national conservatives” and their derision of free-market Republicans garner considerable attention from national reporters and pundits, the ideology that some attack as “Zombie Reaganism” is still carrying the day in GOP-run state legislatures—even in Senator Josh Hawley’s (R-Mo.) own state.
Source: https://www.forbes.com/sites/patrickgleason/2025/11/11/after-missouri-ends-capital-gains-tax-illinois-hikes-business-taxes/
