the regions must also collect revenues, so if you raise taxes on this money to 75%, it would mean effective marginal income tax rates around ~80%.
while such a rate could restrict the ability of the regions to raise revenue, you would at least be promoting investment in Panama and the Cayman Islands.
I'm not taking sides here, but would note that the GM's Office currently assumes the deductability of state regional income tax from federally taxable income applies. Regional rates still increase the overall tax burden of course, but not in direct proportion to simply adding regional rates to federal rates.
okay - i guess in that case the situation is nearly reverse of what i stated. if it's fully tax deductible, every regional increase in taxes on high incomes could be taking up to 75% of its additional revenue from the national government. so then with such a high rate, there is an incentive for the regions to raise taxes, because those taxes will be mostly funded by the nation at large.
the same principle would be true of any other tax deduction - the higher the national tax rate, the greater the incentive for people to spend or invest in ways they otherwise wouldn't in order to get the tax deduction. it's like having a 75% off coupon.
of course, instead of raising the rates, you might consider raising revenues by simplifying the tax code.
