A government supports its legitimate activities under capitalism through voluntary financing methods.
The costs of a proper government — with an army (engaged only in self-defense and not imperialism), a court system, and a police force — are very small, and easily paid for by voluntary financing methods, such as insurance on contracts.
Similar methods are used within a capitalist society by nonprofit agencies, like churches, to raise billions of dollars.
Comments Ayn Rand on “Government Financing in a Free Society”:
Any program of voluntary government financing has to be regarded as a goal for a distant future. What the advocates of a fully free society have to know, at present, is only the principle by which that goal can be achieved.
The principle of voluntary government financing rests on the following premises: that the government is not the owner of the citizens’ income and, therefore, cannot hold a blank check on that income—that the nature of the proper governmental services must be constitutionally defined and delimited, leaving the government no power to enlarge the scope of its services at its own arbitrary discretion. Consequently, the principle of voluntary government financing regards the government as the servant, not the ruler, of the citizens—as an agent who must be paid for his services, not as a benefactor whose services are gratuitous, who dispenses something for nothing. 
In today’s mixed economies, the removal of taxation would be the last step to implement in the transition to a free capitalist society. Only if one wants to turn government into an engine to support the welfare state do voluntary financing methods fail to work.
Most people (not all) would voluntarily give 5 to 10% of their income to support a government that protects rights. Almost no one would voluntarily give 50% to 90% of their income to support a mixed economy/welfare state, which is why the government must threaten the use of force to confiscate wealth via taxation.
Who would want to voluntarily pay for that? Perhaps a few people would, but they are the ones who think that they will get to be holding the leash.
 Ayn Rand “Government Financing in a Free Society” The Virtue of Selfishness]
It is the principle of equal treatment under the law that a graduated “progressive” income tax violates.
“A heavy progressive or graduated income tax.” — Plank 2 of the Communist Manifesto
A so-called graduated “progressive” income tax is a violation of the principles of justice as it punishes those who are successful at creating wealth.
The advocates of a graduated income tax“progressive taxation” are calling for justice. What they are asking for is not equal treatment under the law for all individuals, regardless of race, gender or income. What they are asking for is the unequal treatment before the law. The demand the state to violate the inalienable rights of some individuals, to discriminate against them because they are “rich.”
What so-called “progressives” (a euphemism for communism) mean by “fairness” is a form of injustice known as egalitarianism. They are asking for “social justice” -– “justice” based on the moral principles underlying socialism.
According to egalitarians, it is unfair that some people are more wealthy than others. It does not matter to them whether that person earned their wealth through honest work and industry, or whether they robbed a bank; whether they obtained their wealth through economic production or by political graft. The fact that some people are wealthier than others is proof of unfairness since in their view everyone should be economically equal. Equal, that is, not in their right to life, liberty, and property; but equal in results.
As people are not of equal intelligence, ability, talent, or determination under a system of equal rights and equal freedom (capitalism) some people will become more wealthy than others.
According to progressives, it is the government’s job to remedy this “defect.” Or, in the words of Karl Marx and Frederick Engels: “From each according to his abilities, to each according to his needs.” In practice, this means in today’s “mixed economy” a progressive government’s job is to “redistribute the wealth” of those with the ability to those who can garner enough votes.
A progressive tax is nothing more than “Jim Crow” reasoning applied to wealth creation. It discriminates and punishes an individual, by treating people differently not based on the color of their skin, race or religion, but based on how much money they make. It is thus a clear violation of their property rights. Or, in the words of American Founding Father, John Adams:
“It must be remembered, that the rich are people as well as the poor; that they have rights as well as others;that they have as clear and as sacred a right to their large property as others have to theirs which is smaller; that oppression to them is as possible and as wicked as to others.”
It is the principle of equal treatment under the law that a progressive “fair” income tax violates.
Writes Arthur Mode,
“Most Americans accept the idea that if two men commit the same crime, they should receive the same punishment. Equal treatment under the law for criminal offenses is considered just. If a Congressman were to propose that, for the same offense, Hispanics should be given longer jail terms, or that Catholics should never be subjected to capital punishment, he would be hooted down.
“When the subject changes from criminal to tax law, the concept of equal treatment under the law suddenly goes halfway out the window. Halfway, because there would be no support for taxing some groups differentially, e.g., higher rates for certain religious groups, racial groups, or genders. Such unequal treatment is still viewed as wrong. However, equal treatment does go out the window when one group is mentioned: the rich.
“The graduated tax is in fact an envy tax, not motivated by love for the poor, but for hatred of those who are not. Or, in philosopher Ayn Rand’s words, ‘hatred of the good for being the good.’ If progressives were truly concerned with the poor, they would cry out for more freedom. Instead what they have created is a spoils system where pressure groups battle politically to decide what to do with other “people’s” money.”
One politically feasible alternative tax system, in today’s intellectual climate, is a just, proportional tax.
A proportional income tax system unlike a graduated discriminatory tax, is proportional, i.e., a “flat” tax. Under such a system, a wealthy man would pay the same percentage as a man less wealthy man. Now in total amount, the rich man would pay more, i.e., at 10% tax rates a millionaire would pay $100,000, whereas an unemployed person would pay nothing, but both would be treated equally under the law.
The right to dispose of one’s income belongs to the producer of that wealth, and if one wishes to give it to an heir, a charity, or to flush it down the toilet — that is the producer’s right. It is not any of your concern, and it certainly is not the concern of the government.
As wealth is not a static quantity, to be looted and stolen, the wealth that you can earn is not affected by how much wealth someone else has, creates, or inherits. Since wealth is the result of the human mind, if someone has a mind, and is left free to use it, wealth is theirs to create.
As the creation of wealth is not automatic, those who cannot manage their wealth will soon lose it. As evidence of this fact witness what happens when a rich man passes on his money to a worthless heir — the heir soon loses it. Such is the meaning of the saying, “from shirtsleeves to shirtsleeves in three generations.”