The burden of tax accounting includes a high fixed-cost element; that is, much of its expense is incurred even by the smallest-scale producers. This fixed cost is more easily absorbed by large corporations rather than small enterprises. In the United States, corporations with assets under $1 million are estimated to spend at least 27 times as much on "tax compliance," in proportion to their assets, as corporations of $10 billion or higher (more information). As we shall see in Section 5, businesses that exceed a certain optimum size tend to be too inefficient to survive in a free market. The tax-accounting requirement, however, favors unnaturally large corporations, as do many other regulatory requirements. Consequently, such interventionist policies tend to diminish both the operational efficiency of businesses and the effectiveness of market competition.

The proponents of income taxation sometimes argue that the wealth taken from the private sector by taxation is returned to consumers in the form of an array of services, rendered by the government using those funds. For instance, if $200 billion is taken annually from taxpayers, they contend, then that same $200 billion will be returned to those taxpayers in government services. Hence the net effect of taxation on the economy is supposedly neutral. This simplistic analysis overlooks several important considerations: