I think the competition argument is stronger when considering competition between states. What seems more towards the toxic side is when within a state some businesses get tax breaks and others don't based on lobbying effort and not based on some broader policy that is neutral towards specific businesses.
I agree with that, but it's difficult to say what cities should or shouldn't be able to enact. They do have different requirements to their region, and you wouldn't want e.g. a minimum wage law that might be appropriate for a city to destroy employability in the rest of the state.
Simple - bespoke deals. You cant jusy offer a deal to Microsoft for example, you have tk offer the same deal/tax breaks to everyone who writes software.
If Microsoft doesnt need to pay taxes, then I shouldn't have to either. Or we all pay.