This argument ignores the fact that there is still another channel for the allocation of resources, namely the government. In the given example of agriculture tax credits verses manufacturing without such credits, if resources did not go into agriculture because of the special credit, they would have gone not into manufacturing but into government (through the closing of loopholes, and thus the disappearance of a means of being taxed less), and government is far less neutral to the market than any other allocation. Therefore, if the argument assumes that the best allocation of resources is that which most closely resembles a genuinely free market, then in this example a flat tax produces a worse situation, as any allocation of economic resources in the private sector (no matter how 'distorted) is closer to the free market (and thus 'better), than if those resources went into the hands of the government. So if reflecting the market is the uppermost concern, a flat tax is a worse proposition as it brings into higher rates of taxation many areas which currently are less taxed ('loopholes'), thus distorting the market even further as even more resources fall into government hands