States are near their revenue-maximizing levels now---the CP upsets the goldilocks.
David Gamage 17, Professor of Law at Indiana University-Bloomington, Darien Shanske, Professor of Law, UC Davis School of Law, 2017, “Tax Cannibalization And Fiscal Federalism In The United States,” Northwestern University Law Review, 111 Nw. U.L. Rev. 295, lexis
The existing empirical literature implies that there is substantial vertical distortionary responsiveness to tax rates on corporate income, capital gains, and (to a much lesser extent) ordinary income. By contrast, the empirical literature does not provide much in the way of solid evidence as to the possible magnitude of horizontal distortionary responsiveness to state-level tax rates on these bases. Nevertheless, because the empirical literature implies that the vertical distortionary responsiveness is substantial, and because federal-level tax rates on these bases are much larger than any state’s tax rates, we infer that it is implausible that horizontal distortionary responsiveness could be large enough for horizontal externalities to counteract the impact of vertical externalities. As we will demonstrate, were horizontal distortionary responsiveness so large, this would imply that many state governments have currently set their state-level tax rates near or above their acting state revenue-maximizing levels. We do not know of any serious analysis suggesting that this is the case, and we think it exceedingly unlikely that this could be true without it being a major topic of academic and policy discussion.51 Overall, then, we conclude that tax cannibalization is very large for the current top state-level tax rates on corporate income and capital gains, and that tax cannibalization is rather large for the top state-level tax rates on ordinary income.