The marching call of the Libertarian movement would probably be “Tax is Theft!” It’s appealing to promise the feasibility of a stable world without taxation. Their view of tax isn’t simply that it’s an inconvenience we would rather do without, it’s that it is fundamentally wrong.
I would like to argue that there is no contradiction between Libertarianism and taxation. In fact even a powerful state is consistent with Libertarianism . I will do this by describing a world that is perfectly Libertarian and uses taxation and is filled with powerful states.
A Libertarian (at least the current type of Libertarian you find in the US) would likely hold that taxation is wrong because we are forced to pay it. They will rightly point out that we have little choice. If we don’t want to pay tax we will probably go to prison. This is, in a sense, irrelevant and a misdirection because we don’t live in a Libertarian world. What I mean is that the situation in which we find ourselves being one in which we are ‘forced to pay tax’ is a result of the situation we find ourselves in. But the situation we find ourselves in doesn’t rule out any number of other situations we could be in. So the fact that we are forced, here and now, to pay tax isn’t evidence of principal, only an argument from consequence.
Let’s imagine that all borders are open. Anyone can move to any country they want. They just have to be able to pay for it. Let’s say that we consider states as charities. They have boards that are elected or not, it doesn’t matter. The states own all the land and capital in their respective countries. They don’t necessarily own everything, just the land and natural resources. Some of it they sell, some (like land) just rent out. They charge people a service charge for living in the country (called tax). Anyone who doesn’t want to pay the service charge is free to leave and go to whichever country they prefer. If you refuse to pay the service charges but don’t want to leave the country your service is restricted to being in prison. If a person finds themselves in prison for not paying their service charges they are still free to leave the country, but might not be allowed back in (depending on the State’s policies). States tend to form agreements about accepting custom from people banned from other states, which is their right as private institutions.
Given standard capitalist principals, the kind that Libertarians adhere to, this would make taxation a free market. Taxes would be pushed down too. All of this is perfectly consistent with Libertarianism. Note that Libertarians aren’t against concentrated power. The states could be all owned by individuals, or owned by shared holders, or shares could be issued to customers or whatever. They can do as they please. In principal anyone could by shares in the states, if the states allow it. You might think that the fact that the State owns everything somehow contradicts Libertarian principals. Actually, it doesn’t. The State taking it does. But the State can’t steal what it already owns. As mentioned, it would essentially be renting things out to people. Under laissez-faire capitalism a state would be well within it’s rights to revoke rental agreements so long as it doesn’t breach any contracts. Failure to pay service charges also constitutes a breach of contract.
Obviously this wouldn’t be a particularly nice world to live in. That’s not the point. The point is that it would be a valid Libertarian world. It’s hard to see how this situation could come about. How the states could come into possession of everything is hard to imagine. I suppose a Libertarian might argue that this could only come about by the state taking everything , but that isn’t formally true and would show a lack of imagination. They could trick everyone into giving them everything. They could use complicated financial instruments to create a situation where everyone eventually defaults back to the relevant State. Or everyone could just agree to it. Everyone could wake up tomorrow a born again Libertarian and decide this is how they want the world to work. The point isn’t that this is plausible, the point is that it’s logically consistent with LIbertarianism. Remember the Libertarians don’t object to states or tax is practice, they object in principal. Yet, in principal tax and State can be consistent with Libertarianism.
Again, this would not be a nice place to live. States would have a lot of power . Presumably all the land on the planet that anyone would want to live in would be part of the port folio of at least one State. There would be no-where to go to avoid actually paying tax. This is not inconsistent with Libertarianism as they have no problem with all the worlds food being available only through purchase. They would argue you can create a farm… but on whose property? And I didn’t rule out buying anything off any states or even starting your own state. Moving country could well be expensive, and many people probably would not be able to afford it. Perhaps some would argue that the states might issue charges that limit movement out of their state. Perhaps they would, but I suspect that would constitute a breach of Libertarian principals. A breach that isn’t necessary. Let’s say that there is a law that makes it illegal to charge people to leave the country. Libertarianism is resumed. Actually, I’m not sure that strategically fiddling inter-state movement costs is really a breach of Libertarian principals at all since such a law would be a breach of free-market principles. Maybe a Libertarian could clarify.
Remember that the Libertarian solution to all tyranny is “don’t buy it”. In a Libertarian world if a company is doing something bad don’t buy stuff off them, if you don’t like your job just leave, if you don’t like your landlord’s rules you should move out. There are costs in doing so of-course. That’s life. Perhaps there are no other jobs. Perhaps the cost of changing job is too great. Perhaps you can’t afford to lose the pay as you’ll get kicked out of your house. Perhaps all companies are guilty of the thing you would deny them custom for. So long as you have to eat you have to be a customer. Surely the same is true of paying taxes in my Libertarian thought experiment. It would be difficult to avoid paying service charges to a state, but it would also be difficult to avoid paying for water, or petrol, or milk. That difficulty is not part of the Libertarian equation anyway so I don’t need to provide a way out.
Note that a lot of this is really semantics. The only real change that has to happen is a modification of the borders. The rest is just what you call things. This might be a Libertarian’s counter. That I haven’t described a world with taxation, just a world with something I have called taxation . But, what’s the difference? Would that mean that they are happy to call this world Libertarian? What I described is a situation that has something that is mathematically, financially, numerically and qualitatively identical to taxation. The balance sheets look the same. The ‘states’ are corporate entities… but still everything like the states they hate. If they accept that this is a valid Libertarian world then they have accepted that Libertarianism mostly semantics, and an unrealised dislike of border control .
 Some would probably argue that such a monopoly of power could only come about by intervention of a state to start with. I’m not sure if this is an idea that is universal in US Libertarian thought, but it’s nonsense either way. And even if it were true, the world I described need not have any monopolies. A monopoly is when a market (or some proportion of it) is controlled by one entity, in this world services rendered by state, as a market, could have hundreds of entities competing. It would be less of a monopoly than we see currently in many industries. Geography would play an intrinsic part in this. So even if state power is required to allow a monopoly I haven’t invoked any monopolies. There would also be lots of other industries with many markets all operating at a different level to the states, buying services off states. I also don’t need to stipulate that states are geographically localised. They could be arranged however, and even overlap. In principal you could change state without moving house. It just depends on how the states go about their business. Which is their prerogative.
 I have to talk about violence in more detail. I guess it could be argued that this situation couldn’t come about without a threat of violence somewhere. I’m sure that allowing the threat of violence would make it easier to achieve, but I don’t see how it’s logically necessary. Again my point is not that this is plausible (or even that all possible Libertarian worlds can be arrived at from all other possible Libertarian worlds without ever breaching Libertarian principals).
 I realise that Libertarians are in favour of some form of State, usually one that protects what they consider fundamental individual rights, but the State I describe here is sufficiently different to what many LIbertarians would consider to be compatible with Libertarianism.
 This is also a little philosophically hypocritical because Libertarians would rarely fall for such a semantic trick if it hid taxation in the real world.
 Though I suspect many Libertarians are, ironically, more in favor of border controls. But I can’t back that up.