During the early stages of the game, setting your tax rate correctly can mean the difference between being able to build and research what you want and need, and not being able to.

Through the early quests, the game urges you to play with the tax rate and maximize income. The tax rate however, directly affects the happiness in your city, which effects the population, which effects eventual tax income and your ability to man your farms or produce troops. So, how do these numbers all relate?

The formulas

The following formulas apply to tax rate population and happiness:

• Happiness(%) = 100-tax rate(%)
• Population       = max.population * happiness(%)
• Tax income     = population * tax rate(%)

So, with a max population of 1000 and a tax rate of 50, your happiness is 50%, thus your population is 500, and finally your tax income is 500 * 50% = 250(/h). The graph below makes it more easier to see:

Note that tax rate is both graphed as well as used as the x-axis. As you can see, a fixed tax rate of 50% will, once population has stabilized, net you the largest income, regardless of population size. However, the tax income you need changes throughout the phases of the game.

Early phase: maximize income

During the early stages of the game (read 7-days), you will want to maximize your income to be able to do the research objectives from the academy. As you cannot attack and thus farm, this is likely to be a good part of your income.

If you dont want to spend much time managing your taxes, build enough homes, put the tax rate at 50% and watch the gold delight flow into your treasury chest. If you have more than enough time on your hands, a different strategy can maximize income beyond the 25% from a static tax rate. This strategy is courtesy of FinrodFelagund at the KoM wiki:

Basically, you work in 2x 5 hour periods.To start of, put taxes at 0% and grow your maximum population. Then, do as follows:

1. Put taxes at 100% for 5 hours
2. Population will drop to 50%, as it is adjusted every 6 minutes, same for collecting taxes
3. Once population reaches 50%, set taxes to 50%
4. Now grow back your population to 100% by lowering taxes:
   1. 5 hours at 1% and then 0% if you dont have much time
   2. Lowering taxes 1% every 6 minutes, after collecting taxes, or
   3. Lowering taxes 5% every 30 minutes for medium time invested
5. When population is back to 100%, rinse and repeat

This strategy makes use of the fact that taxes can be changed instantaneously, while population is adjusted 1% per 6 minutes. So taxes can go from 0 to 100 in a second, while the population would need 10 hours to reach 0%.

Of course, being in an alliance also gives the possibility to ask for gold, but hey, it wouldnt be a strategy game without some strategy to dive into if you want 😉  !

Mid-to-end-game

Now, by the time your bubble pops, you should be reasonable self-sufficient in acquiring resources. You have an army, you can farm your neighbors. At this moment, gold is used for two things:

1. Research
2. Hero salary ( which will have grown as your hero leveled up)

At this point, taxes become rather useless. Gold is the easiest farmed resource as it is virtually impossible to protect. When I farm for an hour or so, I always have more than 1m gold in my pockets. So research wise, taxes could be set to 0%.

However, your hero will still needs its salary when you appoint it to a task in the Great Hall, which most of the time should be the resources job. Unfortunately, your hero quits his job (un-assigns) when your out of gold. For this reason, I put my tax rate at whatever gives me the current salary needed to keep my hero assigned to his post.

Even with 2m at the bank, I simply dont want to be robbed of my gold, which likely will happen one day, and then to forget to re-assign him to his proper job. Not that this all matters that much, but thats the way I roll tax-wise.

Hope this was helpful!