There’s little room for state-level taxes.
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
One reason is that the federal government currently levies relatively high tax rates on somewhat narrow bases. Indeed, the United States stands alone among major developed countries in not raising a large portion of its revenues through a value-added tax (VAT), and then compensates for this by levying some of the world’s highest tax rates on corporate income, capital gains, and ordinary income.113 The federal government then define these tax bases in ways that permit large-scale tax avoidance and tax gaming, especially for the corporate income and capital gains tax bases.114 There is controversy as to how successful the federal government might be in fixing these loopholes and structural flaws if greater effort were applied toward tax reform. Regardless, as things stand, the empirical literature implies that there is only limited space between the federal government’s top tax rates on corporate income and capital gains, and the overall revenue-maximizing levels for these tax rates. There is thus only constricted room for state-level tax rates on these bases without unduly harming national welfare. To a lesser degree, this is also so for the top tax rates on ordinary income.