Obviously the after-tax income of the taxpayer is the product of his taxable income times the difference between 100% and the state tax rate, times the difference between 100% and the state tax rate (YMMV if you also have local sales tax, or if you itemize your deductions). So if the Feds are greedy and risk going past the peak of the Laffer curve in their own right, the effect of a state income tax easily functions as the last straw which breaks the camels back. Combine that effect with the additional flexibility which typically attaches to the affairs of the most prosperous, and you have a recipe for a Rush Limbaugh leaving New York for Florida, and shaking the dust off his shoes as he goes.
The other point about the Laffer Curve is that taxes on capital gains are notorious for yielding less revenue whenever the rates are raised, and more revenue when they are lowered. A state income tax on capital gains would thus be most certain to be counter-productive.Finally, if the government actually wanted to maximize revenue (and not indulge in class warfare, which is the president’s obvious objective) you would set a limit on the revenue of the capital gains tax, providing that any increase above that ceiling would be pro rata rebated to the taxpayer (Obviously you would set that limit above your current revenue from the tax). If you were actually below the counterproductive range, you would see no change - the revenue limit would not be reached because nothing else had changed to make revenue change. But if your rate is significantly above the counterproductive limit, people who have capital gains would realize them, in the confidence that there would be a rebate, and the effective tax rate would in fact be well below the counterproductive limit. That would be a self-fulfilling prophesy, and the government would net the higher revenue which it had set as the “revenue limit” for the tax.The government would then have a data point on the Laffer curve, known to be below the counterproductive limit. The government could then simply set the tax rate to that non-prohibitive value, and dispense with the revenue limit. I would estimate that the resulting tax rate would be below 10%.
Finally, it is important to note that whenever the tax rate is above the Laffer counterproductive limit, raising the rate lowers the revenue by the mechanism of causing a recession. A recession is not a valid excuse for explaining away a decline in revenue associated with an increased tax rate, recession is the predicted symptom of a tax increase into the counterproductive range.
Oh, my ...
I know some people who own stocks whose value is almost entirely capital gains today. They've owned the stock for decades.
If your idea was implemented, even assuming that the government intends to raise double the present annual revenue, just imagine how this would play out.
In January of the first year of effect, perhaps a twenty percent increase of the usual capital gains is claimed. Then in February, perhaps the revenue is up about fifty percent.
Once it is realized that the effective rate is going to be lower than the prior rate, March shows double the usual amount of capital gains. From this point on, people might be looking at getting their capital gains at 75% of the usual rate. April might show TRIPLE the usual capital sales.
That rate of capital sales would lower capital gains to 66% of the prior rate. Through the rest of the year, investors might be anticipating that the rate would end up even lower.
Imagine now that by the end of the year, the total capital gains realized was TEN times the prior years amount. That would make the effective tax rate 20% of the prior rate.
This rate would accomplish just what you anticipated; that is, the revenue doubled. The problem is that the FUTURE revenues might disappear for several YEARS since the new rate encouraged TEN times the activity that would otherwise have occurred.