When Missouri state Sen. Adam Schnelting and his wife ran the numbers on how much money their investments could generate for their grandchildren and great-grandchildren, he began to think about how the government could utilize investing, too. 

“We began to realize how powerful compound interest was,” Schnelting said. “So I got to thinking, ‘Why are we taxing ourselves over and over again? Why don’t we apply this to government as well?’”

Schnelting, a St. Charles Republican, has spent the last year developing a proposal for a state investment fund, the “Show-Me Prosperity Fund,” that he hopes will eventually generate enough revenue to replace all state taxes.

“I want to reimagine how we fund government,” Schnelting said. “As it pertains to state taxation, I want to move the government from the ‘taker’ column and put it in the ‘caretaker’ column.”

If it is put on the ballot by the legislature and then passed by voters, Schnelting’s bill, Senate Joint Resolution 95, would enshrine the fund in the Missouri Constitution. The legislature would then appropriate money into it over the course of decades, during which time the state treasurer would invest the money.

In the first version of the bill, the treasurer was directed to specifically invest in “exchange-traded funds tracking the stock performance of the (S&P) 500.” That language was removed in a substitute version, but Schnelting told The Beacon he still envisions it investing in ETFs. 

When the treasurer says there is sufficient money in the fund to do so, the state would begin to eliminate taxes, using up to 2% of the fund’s five-year average value every year to replace that revenue.

“My hope is that in, say, 100 years from now, or 125 years from now, Missouri doesn’t tax its citizens whatsoever — at all,” Schnelting said. “All taxes, whether of income, corporate income, sales and use, the state portion of the personal property tax or the real estate tax, all of them will be gone. That’s the goal.”

The larger debate

Schnelting’s proposal comes as Gov. Mike Kehoe and Republicans in the legislature, including Schnelting himself, push to eliminate the state’s individual income tax. 

In his State of the State address in January, Kehoe tied Missouri’s “average at best” economic growth to the state tax code.

“If we are serious about building a foundation for growth, to compete rather than be complacent, then we must begin the work now to phase out and eliminate Missouri’s individual income tax,” he said.

During his speech, Kehoe proposed a plan to gradually eliminate the income tax while replacing it with an expanded sales tax. House Speaker Jon Patterson, a Republican from Lee’s Summit, is sponsoring a bill that lays out more details of the shift. 

Democrats and other critics of the proposal say it will increase the tax burden for 60% to 80% of Missourians and disproportionately impact lower-income residents because more of their income is used for consumer spending. 

Schnelting said eliminating the income tax is a priority for him and other Republicans because “one of the most heinous taxes … is the taxation of our labor.”

That’s why, under his proposal, the fund would first replace the personal income tax, followed by the sales and use tax, corporate income tax and other state-imposed taxes. 

What is a sovereign wealth fund, and could one eliminate Missouri taxes?

Schnelting said the fund would be “essentially a sovereign wealth fund,” a government-owned investment fund of a type utilized by governments across the United States and world.

There are more than 100 sovereign wealth funds around the globe. Moreover, 14 states — Alabama, Alaska, Colorado, Hawaii, Idaho, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Utah, West Virginia, Wisconsin and Wyoming — manage one.

Most sovereign wealth funds are supported by revenue from natural resources like oil, gas or minerals. But some are funded with budget surpluses, including surplus tax revenue.

Patrick Tuohey, a senior fellow at the conservative Show-Me Institute, said he found Schnelting’s proposal “novel” in part because the government would have to use taxpayer dollars to seed it.

“This appears to be a sovereign wealth fund-type thing, except there is no source of revenue. For example, Alaska has oil revenues external to the state budget,” Tuohey said. “This looks like a sovereign wealth fund, but it would have to be funded by taxes.”

That presents a problem, given the state’s current budget woes, Tuohey said. 

In June 2023, Missouri saw a peak budget surplus of nearly $8 billion. But after several years of outspending incoming revenue and using the surplus to make up the difference, the state is facing an estimated $1 billion shortfall in fiscal year 2027, according to a statement released by the governor’s office.

“You can set this up now, but I don’t imagine that the legislature, in the next few years, would be willing to set aside revenue that they can’t touch for 100 years when they’re having a budget crunch presently in order to provide basic services while reducing income taxes,” Tuohey said.

It’s also a heavy lift, he said, because “it requires a level of discipline that the Missouri legislature has not demonstrated in the past” when investing in pension funds.

Even if the fund were successfully created and funded for several years or decades, “it’s unlikely that future legislatures would, in a time of crisis, not just raid the lockbox for their present needs,” Tuohey added. “No legislation by a legislature can bind the hands of future legislatures.”

‘Because the market works’

States and foreign countries with sovereign wealth funds have used their funds’ income to “smooth out fluctuations in the budget,” but not to cover the entirety of their spending, said Tad DeHaven, a policy analyst at the libertarian Cato Institute.

While other states use sovereign wealth fund earnings to fund part of their state budgets, support schools or pay dividends to qualifying residents, none has explicitly used those earnings to directly eliminate and replace a specific tax. 

Asked whether he was confident his fund could successfully replace taxes given that it hasn’t been done elsewhere, Schnelting said he was, “because the market works.”

“We just need to learn the power of compound interest and utilize it,” he said. “I think we need to think outside the box, and I’m confident that if Missouri voters approve it, it would work.”

Tuohey, from the Show-Me Institute, said that while he has concerns about getting the fund to a point where it could eliminate taxes, he believes the broader idea of investing state money is a good one.

“Just look at the history of the market over the past 100 years. If you invested a little bit 100 years ago and kept it up, you’d be very wealthy now,” he said. 

As an example, Schnelting said that if the state made a one-time investment of $250 million into the fund, in 140 years it would grow to $43 trillion.

“A 2% distribution on that fund would be about $868 billion annually, which more than makes up for the state budget at that time, even with inflation,” Schnelting said. 

Navigating market volatility

Schnelting’s example assumed a 9% rate of return, which is slightly below the S&P 500’s average of 10% since the 1950s. 

But once inflation is factored in, the average rate of return is closer to 6% to 7%. A 6% rate of return on the $250 million investment after 140 years would grow the fund to $872 billion.

Short-term volatility is another factor. While the stock market has grown significantly over the last 100 years despite events like the Great Depression and the 2008 financial crash, that growth is averaged out.

The S&P 500’s rate in a given year can often be different from the 10% average. In the last 25 years, the market saw a peak return of 32% in 2013 and a decline of 37% during the housing crash that led to the Great Recession in 2008. 

Once the state begins using income from the fund to replace taxes, an economic downturn could have a greater impact, according to Manish Bhatt, vice president of state tax policy at the right-of-center Tax Foundation. 

“When states begin relying on spot rates of natural resources or performance of certain markets, I think there’s some real questions as to (whether) that (is) a long-term, sustainable guarantee of sufficient revenue to eliminate taxes,” Bhatt said.

The North Dakota Legacy Fund, a sovereign wealth fund valued at $13.6 billion as of December, saw this instability firsthand when market volatility cost the fund $1 billion in value in one week in April 2025. 

In the second version of the bill, Schnelting added a provision allowing the legislature to “appropriate funds from any lawful source,” including reinstating taxes, in the event of a revenue shortfall or if the fund becomes insolvent. 

That was added as a compromise with House lawmakers who’d expressed concern over what would happen if the fund failed, Schnelting said. He added that he doesn’t personally believe the fund could become insolvent after it had grown large enough to support state spending.

“If it failed completely and we wouldn’t be able to utilize it, we would have much bigger problems as a country, because it would mean the American market collapsed,” he said.

Asked how reinstating taxes would work in practice, Schnelting said “it’s hard to answer because it is hypothetical.”

“The legislature, say, 100 years from now would have to figure out a way of managing any of those shortfalls temporarily until the market rebounds,” he said.

Bhatt said that while the ability to bring back taxes to address a revenue shortfall provides some stability in terms of state revenue, “stability in the tax code should be such that there’s not wild swings in tax liability from year to year.” 

While the new bill language doesn’t specify that the fund must be invested in ETFs, Schnelting said he still envisions it being invested in the S&P 500. 

That’s unusual, according to Marty Margolis, founder of the independent Public Funds Investment Institute. He said a more diversified investment strategy is common because it reduces risk.

“If you think about endowments for foundations or colleges, they generally are viewed as having a perpetual life. It would be highly unusual for an endowment with a perpetual life to be invested 100% in equities,” Margolis said. “It just isn’t done.”

To do so, he said, was like putting “all your eggs in one basket,” which he said can be risky given the volatility of the market. Diversifying the portfolio by also investing in other things would provide more stability, he said. 

While he was developing his proposal, Schnelting consulted Paul Curtman, a financial adviser and former member of the Missouri House of Representatives.

Curtman said investment funding “could be” stable enough to cover state budget needs,  depending on the size of the government. He said lawmakers will need to consider how they can “bind” the government to prevent it from living beyond its means once it’s dependent on investments.

“My hope is that Senator Schnelting is able to get where he wants to get with this legislation, and  along the way, what he’s doing will force representatives and senators to be much more thoughtful about the sound financial principles that they are exercising in the halls of the Capitol building,” he said.

Focusing on the short-term

In the Tax Foundation’s 2026 report ranking states on the competitiveness of their tax codes, Missouri ranked No. 12 overall, No. 5 for corporate taxes, No. 5 for unemployment insurance taxes, No. 12 for property taxes, No. 17 for individual taxes and No. 25 for sales taxes.

Missouri, “from a tax perspective, is very competitive,” said Bhatt with the Tax Foundation. “Scrapping (the tax code) entirely and replacing it with uncertainty could decrease the state’s competitiveness.”

“I would urge those interested in reform and relief to look at ways to make the state immediately more competitive,” he added, pointing to Missouri’s middling ranking on sales taxes.

DeHaven, from the Cato Institute, also urged Schnelting and other Missouri lawmakers to focus on present-day government funding policies. 

“It makes more sense to focus on reducing spending so that taxes can be lowered, leaving people with more disposable income to invest,” DeHaven later told The Beacon in an email. “Private investment is preferable to public investment.”

‘I’ve learned not to be optimistic’

Schnelting said he’s received positive feedback so far from Republican colleagues, including Sen. David Gregory, a Chesterfield Republican who praised the proposal as “exactly the type of stuff we need to be doing” during a Feb. 4 hearing on the bill. 

The only person to testify on the bill during the hearing was Byron Keelin, president of the conservative advocacy group Freedom Principle MO, who told lawmakers: “Missouri … has even greater potential to lead with this conservative, pro-growth approach.”

Schnelting said he has “purposely made sure that I’ve not placed this proposal in any kind of partisan light” because “this issue is not partisan at all.” He told The Beacon he hadn’t yet spoken with Democratic lawmakers about it.

Asked whether he was optimistic it would pass, Schnelting said he was, “but at the same time, I’ve learned not to be optimistic in (the Capitol), because things can be so unpredictable around here.”

“I’m optimistic that long term, we will certainly be able to move the needle on this and get it to the voters for them to decide,” he added.