"The hardest thing in the world to understand is the income tax." - Albert Einstein
While this may be true in the real world, fortunately taxes in CN are fairly straight forward. Here's a simple guide to ensuring you get the most bang for your citizen's buck.
Currently, taxes affect population happiness as follows:
10%-16% gives +0 happiness
17%-20% gives -1 happiness
21%-23% gives -3 happiness
24%-25% gives -5 happiness
26%-28% gives -7 happiness
The
only affect of happiness is to change how much money your citizens earn. (Currently, one point of happiness equates to $2.00 earned per citizen.) Many people don't want to charge a high tax rate because they don't want to anger their citizens. While this is noble, in terms of the game all it does is reduces your government's income, which in turn stunts your growth rate. It also means that it is pointless to raise your tax rate, collect your taxes, and then lower your rate again to make your people happy. In fact, it's rather dishonest to your citizens. Shame on you.
Okay, so given that the effect of happiness is to change your citizen's income, and given that your taxes are directly proportional to that income, figuring out your optimal tax rate becomes a simple min/max calculation. I know what you're thinking... You're thinking "Math!?!

Not math! Noooooooo!" Don't worry, I've done all the hard work for you.
Here's what you have to do. First, set your tax rate to
16%. Now look at your "Avg. Gross Income Per Individual Per Day". Got it? Good. On to the handy chart.
If your nation's
Avg. Gross Income Per Individual Per Day is:
0.00 - 10.00 set your tax rate to
16%10.01 - 32.66 leave your tax rate at
20%32.67 - 50.80 set your tax rate to
23%50.81 + set your tax rate to
28%And you're done! See, wasn't that easy!
For all you new nations that aren't at 28% taxes yet, don't forget to advance your tax rate as your Gross Income increases!
(Again I did not make this)