If tax-supported law enforcement (though not at all arbitration and not fully law-making), may be a workable solution for some communities (and as always, when I speak of a community I imagine local self-government), then we must ask what the most just way of financing the police would be. It is obvious to all that when a person buys something at the store, he almost never experiences significant price discrimination: a lamp costs the same whether the buyer is rich or poor. The question is, Why should there be price discrimination in the form of a progressive or even flat tax for the services of the police?
Now the function of the police should be two-fold. First, to enforce judicial verdicts, those that are actually issued and delivered to the police, and those that the police assume will be made, such as when they ticket people for speeding. It is not at all obvious that rich people sue others more than poor people do, requiring more attention from the police in securing their rights.
Secondly, the police deter crime in general, on the margin, of course. It is true that a rich person has more property to protect and is a bigger target for thieves and similar miscreants. But police are not to provide actual security guarding. Their deterrence power permeates the entire community; so our rich guy is likely to invest more into personal security, all the way to hiring bodyguards and bullet-proofing his car. Again, it is not self-evident that the police will expend more resources on deterring those who would without such deterrence prey on the rich rather than the poor. People have been known to kill for $5.
Given the reasoning above, the answer is apparent: the tax most in accord with justice is a head tax, wherein everyone pays the same amount regardless of his income or wealth. It also has the advantage of being easily enforced, non-intrusive, and perhaps even neutral (empirical economists correct me if I am wrong). I fully agree with Rothbard that the ability to pay principle of the progressive / flat tax is the procedure of a highwayman who robs his victims as much as they “are able to pay.” But still the head tax may be a genuine hardship for some to comply with. What to do? Let’s combine the benefits of the head tax with those of the flat tax as follows: Everyone pays 2% of his income to the city government until his total tax reaches, say, $1,000. Then he pays no more. As I pondered this scheme, I remembered that economist Steven Landsburg suggested something similar in his book Fair Play. In his stirring words, “My own gut preference is that nobody should ever be required to pay more than five times the average tax bill. … [This] criterion proclaims the virtue of liberty… It embodies the principle that there is some limit to our social responsibilities. Whatever duties we may owe our fellow citizens, we should be able to fulfill those duties and then move on.” (107) Amen, brother.
Note also how this arrangement permits taxpayers to keep their privacy. If the law orders them to pay 2% of income or $1,000, whichever is less, then one can simply pay $1,000 and not file any tax return at all. The city government will not have any access to his financial data, because he is paying the maximum tax, anyway. On the other hand, those unwilling to buy privacy in this manner can submit their information to justify paying the 2%.