So to allow this regulatory race to the bottom within a country or a market makes no sense to me at all. Only if the firm would move abroad would there be a net loss.
I think part of the trouble is that tax rates are very different across different states. If the US were to ban all state and local tax incentives, then that would very much hurt high-tax states, as they'd then have fewer tools left to compete with low-tax states in attracting businesses.