The basis of an investment has already been taxed, yes, but a capital gain by definition is income above and beyond the basis that hasn’t yet been taxed.

I’d also gently point out that in one paragraph you’ve managed to swear off social engineering and then pivot to advocating, if I’m understanding you correctly, for a capital gains rate of 0% in order to incentivize more investment. Whatever the merits, that’s textbook social engineering, and would clearly distort labor/capital choices amongst workers (witness the CEOs paid $1 in annual salaries), not to mention violate basic tenets of equity, which, like those raging liberals Milton Friedman and Friedrich Hayek, I consider to be an important economic criterion.

That said, I do think we need to be cognizant of capital flight and recognize that capital is generally more mobile than labor. So my ideal tax system (other than a VAT/carbon tax/land tax system with progressive offsets) would be one that taxed labor and capital income broadly, equally, and at a relatively low marginal rate. I also think that in general, state corporate income taxes are dumb ideas.

The idea that the states that get more money would actually be worse off is pretty counterintuitive, so I must admit that I’m skeptical. (Even if some local crowding out occurs, the idea that the malinvestment would actually have negative effects exceeding getting a disproportionate share of money taxed from elsewhere seems unlikely.)

The difficult with estimating the national effects, of course, is that we have had other policies, like QE (and other monetary policies) in effect.