I'm not sure if it was stated previously in this thread but tax not only effects happiness but taxes penalize town growth as well. The higher the tax rate, the higher the penalities to happiness and growth. This penalty seems to grow expontentially after the normal tax rate. So, in the long run, you're better off running a lower tax rate to maximize growth.

However I'm running a normal rate for the first part of the game because I need the cash to build markets and trading posts and the overall hit to wealth is small because of your limited amount of cities. And money now is better than money later. =)