Since the purpose of productive action is precisely to obtain the values we call property, taxation of that property is praxeologically equivalent to confiscation of a portion of one's productive action and therefore constitutes a form of involuntary servitude. This point is easiest to grasp in the instance of the income tax, but we shall show how it also applies to gift, inheritance, and various kinds of sales taxes. Let us first examine how an income tax affects market action.

As we have shown, the market value of labor tends to equal not only its DMVP but also its marginal cost to its suppliers, i. e., workers (p. 4.8:10). If an income tax is imposed on workers—regardless of whether it falls on floor sweepers, upper-level managers, or the self-employed—then that tax becomes part of the marginal cost of labor, along with the inherent disutility of the labor, for those workers. More specifically, the marginal tax—that is, the extra tax incurred by the worker as a result of providing an additional unit of labor or taking any productive action—is added to the worker's disutility of labor to determine his or her marginal cost. Since the wage is determined in a marketplace of both buyers and sellers, however, the worker cannot unilaterally "pass on" the cost of this marginal tax to the employer. The assumption that taxes are merely "passed down" through the structure of production is a common fallacy, often applied by the misinformed not only to the income tax but also to other kinds of taxes imposed on producers at the various stages of production. The notion arises from long-discredited cost theories of value (pp. 4.4:34-40) and is clearly simplistic and erroneous, as should be clear from our analysis of the market, which showed that prices are ultimately determined by utility rather than costs of production.