Question: In what ways does Objectivism support an organized form of government? I know the primary purpose of any government should be to protect the freedom and property of its citizens, but if you are going to protect the rights of all individuals without discretion, doesn't that imply some form of tax system? Since there is no way taxes can be rationalized under Objectivism, it appears to be a contradiction.
In my essay "Radical for Capitalism," I write the following:
In keeping with her proposal to fundamentally reconceive of government, Rand opposed the income tax, and indeed all taxes, holding that government in a free society would subsist on some form of voluntary financing (The Virtue of Selfishness, pp. 116-120). Her critics have questioned whether such a strictly circumscribed state is possible, and have doubted that, given Rand's doctrine of rights, any state can function in the manner she envisions. Whether a state can be financed without taxation is a topic even Rand's followers debate. (note: see e.g., Murray Franck, "Taxation is Moral," Full Context Vol. 6 No. 10 (June 1994) pp. 9-11.)
In my view, government establishes itself in a social disorder in which force is a means openly at everyone's disposal. It is not possible to have a true market for the service it provides, since a market is conducted by trade (voluntary exchange to mutual benefit), and non-coercive voluntary interaction is a defining trait of trade. Warriors may negotiate, but only peaceful people can truly trade.
I don't know whether a voluntary system could support government. If we got to the point of having to face that challenge, it would be fun to try and see what would work. At the worst, government could charge for "services" it provides, such as contract enforcement, protection of property, national defense, and so on. It would not need to directly force payment of these fees, but could simply withhold service from defaulters or seceders. Such charges would still be rather like taxes, of course, in that not paying them could expose one to force from private citizens (thieves, repo men, etc.) or even the government. But this is an artifact of the role that government has to play, and not a sign of its inherent immorality.
In the end, the particulars of financing government in a free society present a problem for specialists in law. This is not an issue that can be fully resolved by philosophers, so distant as we are from that context. Philosophy can, however, define the basic freedoms that government should seek to uphold and define the basic standards of political justification.