What taxing should do is provide an interesting choice between utility now or in the future.
Taxing is currently a formula where a sovereign decides to trade (gildar) for (production AND research OR mana from spells that reduce unrest OR buildings slots from special buildings that reduce unrest).
My suggestion is to change this tax system to a trade off between (gildar AND research) for (production or buildings or mana). This might be too big a change for the main game and might be more suited for a mod at this point, but that's up to your interpretation.
Current Beta 1 Problem
There is such a s superfluous amount of gildar to be gained from selling magic items that there's no reason to take the research hit. I always have more than enough gold or production to get what I want, so research is the only valuable commodity after mid-Act I. For the sake of this thread, let's assume that gold wasn't flowing like water because I'm sure we'll see better balance on that part in Beta II.
Review: How it Works (skip to Trade Offs if you don't want to dive deep)
Gildar can buy units, buy buildings, buy items, needed for some quests, can bribe other players, and is easily transferred throughout the kingdom and does not suffer from diminishing returns. X gildar buys your first spearman and the same amount buys your 100th.
Production can only buy units and buy buildings and is not transferable. Production will usually be highest in the oldest cities where there are fewer opportunities to get new buildings and less need for units than in new towns on the frontier, so production has diminishing returns in older cities. Thus production can be considered an inferior good to gildar, and I would only trade 1 gildar for multiple production.
Research can't be compared as easily. It boosts population potential which boosts research, gold and production. It boosts production directly based on materials. It allows magic, champions, better units, and basically everything. The balance is that returns on research are diminishing. In one game, it costs about ~200 research to get agriculture (up to +30 food per grain and farms) while it costs ~600 research to get animal husbandry (up to +20 food per grain and pastures). I would trade away research only as I needed production and gildar for actual units/buildings/items.
In buying units and buildings, 1 gildar buys 1 production.
Gildar is gathered with the following formula: (population x 1 x tax rate) + hero benefits + resources - unit cost - buildings maintenance + building benefits.
Production is: ((population x .1) + (materials x (technology boost + building boost + 5)) x -unrest rate from taxes
Research is: ((population x .1) x (1 + technology boost + building boost + magic boost + research boost)) x -unrest rate from taxes
Tax is jagged and there might be other factors that I'm not aware of (I'm not looking at the code), but seems to be:
No tax = 10% unrest, 0% tax rate; low tax = 26% unrest, 1% tax rate; normal tax = 40% unrest, 3% tax rate; high tax = 52% unrest, 5% tax rate; brutal tax = 62% unrest, 7% tax rate; oppressive tax = 90% unrest, 10% tax rate. The five jumps are: +1% tax for 16% unrest; +2% tax for 14% unrest; +2% tax for 12% unrest; +2% tax for 10% unrest; +2% tax for +10% unrest; +3% tax for +28% unrest.
So tax has a sharp entry cost, but then decreasing unrest costs and stable returns up until oppressive.
I'm with Pslblog in that unrest and rebellion is somewhat silly given the do or die situation of Elemental. The idea behind taxing as it is right now is that if I as the sovereign decide to take 1 gildar out of 100 for uses of the kingdom, then 16% of the population quits working and producing. That's crazy talk. And if 10% tax is "oppressive", then what do we call the US (which isn't the heaviest taxer) where I lose ~30% of my income to taxes? I should have been rebelling in the streets long since. So, the idea is a little hard to choke down, even if the %'s were adjusted for story reasons. The farmer who produces X amount of wheat is likely to continue producing X amount of wheat even when taxes rise.
In one of my games on turn 79, here are the trade offs: http://imageshack.us/photo/my-images/837/taxtrades.png/. One day I'll learn how to post images. The production, by the way, is kingdom wide. I have no idea what the in game tool tip is calculating (it showed 22.2 production when I had 292 kingdom wide over 8 cities)
So, is 4 gildar worth 46 production and 7.8 research? Or is even 8 gildar worth 43 produciton and 6.8 research? I can literally produce 5 units across my kingdom for every 1 I buy with gildar at that exchange rate AND not reduce my research by significant amounts.
But even if was balanced, I would almost always choose efficient production and research over the versatility of gildar. Gildar fills the gaps in strategy, and a well executed strategy would have few gaps. Making gildar too valuable would negate all strategy, since units and buildings could then pop up anywhere at any time.
How it Could Work
Let's say that production was balanced against research and gildar.
I'm thinking that a sovereign has a choice to either take control directly or empower his people. In a hands-on tyranny, there's more production because the government directly tells people what to do and where to do it. The pyramids would never have been built by individuals making choices independently. In a free society, there's more income and research because the people are more efficient and have the time to innovate. No government spending $50 on hammers. That also fits more into the kingdom/empire balance in the Elemental world.
Instead of taxes, call it government style. Instead of % tax rate, call it something like government type (dictatorship to theocracy to monarchy to oligarchy to republic to democracy). These governments exert "order" in various degrees from 0% to 100%. More order is +% to production while less order is +% to research and gildar. It seems like a big change, but it's just renaming what already exists.
Keep unrest but it will only be caused by magic that curses the city or by sickness or other affects that would genuinely cause the population to be less effective at everything.
Kingdoms vs Empires
Kingdoms could have access to less ordered governments or receive greater bonuses from less ordered governments while empires would be the opposite.
Gildar is gathered with the following formula: (population x 1 x order rate/10) + hero benefits + resources - unit cost - buildings maintenance + building benefits.
Production is: ((population x .1) + (materials x (technology boost + building boost + 5)) x -order rate/10
Research is: ((population x .1) x (1 + technology boost + building boost + magic boost + research boost)) x -order rate/10
Going back to my game on turn 79, if I had to choose between 8 gildar AND 6.8 research or 43 production, I'd have a tougher choice. Let's again assume this has been balanced, so the exact numbers aren't an issue. I'd go with gildar and research if my kingdom was doing well and I had some breathing room to reach for better tech, with gildar being stockpiled against harsh times ahead. No need for 20 more spearmen if I could instead reach for axemen before building. However, I'd go with production if I was beset by enemies and needed to respond with units quickly or I had a lot of buildings to catch up on.