Government runs on taxation. While a sovereign government can print its own currency, that currency means nothing if its people produce nothing of value. Taxation is a charge on the value someone creates. Taxes are necessary to the functioning of government, and a government which does not raise enough in taxes to cover its obligations is doomed, eventually, to failure.
There are two methods to raise these taxes, they are Direct Taxation and Indirect Taxation. In general, Indirect Taxes will be conducive to Liberty and Direct Taxes will be conducive to Tyranny. It behooves us to understand why.
Indirect taxation taxes the value created by a good or service. In general, these will be sales taxes (a general tax on the value of any transaction) or a duty or levy (a specific tax on an item or category of items). If you want to think of them that way, indirect taxes are a commercial transaction which takes place on top of another commercial transaction.
In any commercial transaction, payment is rendered for some good or service. If you are the one who is "selling" then you are rendering a good or service in exchange for a different good- usually money. If you are the one who is "buying" then you are rendering a good (again, usually money) for some other good or service.
In the case of indirect taxes, the "good or service" you are "purchasing" is the Government. Specifically, it is to be hoped that what is being funded is the necessary operation of, or payment for, government obligations. In theory, the taxes should have some baring on the item or transaction taxed. As a specific example, gasoline taxes are supposed to be used to pay for road maintenance and new roads. Another specific example would regulatory charges which pay for the operation of the regulatory agencies. A more general example- a sales tax- simply pays for the operation of government generally. It is assumed that the operation of government assists the sale in some way- for instance, by providing enough peace and stability for a money economy to function.
These are conducive to Liberty for two main reasons.
The first is that there is a limit to the amount of money an indirect tax can raise. While a government can theoretically set any level of fee or taxation on any specific good, service, or transaction, the reality is that people do consider those fees and taxes into the cost of items before they purchase them. Raising sales taxes too high will serve only to kill your money economy. Barter and under-the-table economies will quickly rise to replace the "official" economy and thus deny funds to the Government all together. To some degree this happens already.
The second reason is that indirect taxes are, to some degree, voluntary. No one has to purchase cigarettes, or alcohol, or even gasoline for that matter. Certainly many people do purchase these things. Many people even view them as "necessities," but they are not. The British Government thought of tea as a "staple item." Weren't they surprised when some men in Boston most emphatically said, "no, it's not?" So to the extent that various goods, services, and transactions can be avoided, so can those taxes be avoided. That gives me many legal options for keeping more of my own money.
Direct taxes, however, are inherently tyrannical. They are taxes on one of two things, in either case the tax is a form of tyranny. Direct taxes are either a tax on simply being alive, or they are a tax on a person's labor.
Note that taxes, in these cases, would still be "commercial transactions." That is, you're paying a good (money) for something- but what is that "something," and do you have the option to avoid that tax by not partaking in that something? In the case of a "capitation" or "per-head" tax, the tax is simply on your life. You are, in essence, paying the government just because you are alive. Note that this is the kind of "tax, but not-a-tax" written into ObamaCare to enforce the individual mandate. Simply being alive is enough to force you (in that particular case) to purchase a product or pay a tax. Income taxes, however, are taxes on your labor. Again, conceptually, you are paying the government for the right to produce something of value and reap the benefits of it.
In either case, the government is taxing one of your Natural (or "inalienable") Rights. It taxes your right to Property in the case of income taxes, while it taxes your right to Life in the case of per-head taxes.
Now, that in itself is tyrannical. Indeed, it is the definition of tyranny- you either live only at the sufferance of the State, or you work directly for the good of the State. But beyond that, the same things that make indirect taxes conducive to Liberty are reversed in direct taxes.
Limit on taxation? Well, there is a practical limit, in that those with means will eventually expatriate and renounce their citizenship if necessary to avoid insanely high taxation. But those without means have no ability to avoid those taxes. There is no surety against a 100% income tax and total redistribution of wealth. Indeed, some on the Left have prescribed exactly that.
Voluntary? Only insofar as you could always choose to commit suicide, or refuse to engage in any labor. That is, they are only voluntary to the extent you can volunteer not to live, and not to obtain property.
I, personally, have been skeptical of the practical way in which a national sales tax could be implemented. With the re-election of Barack Obama I no longer care. Direct taxes are tyrannical. Indirect taxes are not. It is time to force the Government out of sectors it shouldn't be in in the first place, and back to its first principles. Direct taxes, with their correspondingly lower revenues, are the best way to do that.