Well, you've mentioned this several times, and I have to say that it is correct 'in part'. Yes, RS2 income is based on taxes...or more specifically, the application of positive or negative tax bonuses. But, the 'ability' to tax is actually based on a 'true' economic model....maybe not the best or the most correct...but on a semi-valid model, anyway.
To explain this, first you have to understand that RTW really has no 'economy', so to speak. In it's native form (Vanilla) it has a bunch of trade bonuses that continually boost income which, on a graph, would start at '0' and curve upwards 'ad infinitum' until it's just 'straight up'. For that reason there is little you can do to control anything other than a script that constantly takes away money in increasingly larger sums...because at some point, what you rake in is more than scripts can even take away. This was a matter of disillusionment for me in my campaigns, because always, always there was a point reached where they WAS no point anymore....I had so much money it was stupid and I could just buy the map if I pleased. And it doesn't matter if it's 1-turn or 0-turn, eventually this starts to happen.
I tried to correct this in RS1.6, but never accomplished it because I didn't know at the time that a 'negative' trade bonus doesn't do anything. So all the negative trade bonuses I tried to use weren't taking anything away, and was left with the same old same old problem...cascading cash.
Well, a fellow named 'Gotthard'...now gone for some time from the Forum, and myself got into brainstorming how to 'fix' this inherent RTW problem, which at it's roots ignores a very central fact about 'trade'. Trade is what makes producers and buyers and resellers the money. The farmer grows grain, he sells it to a broker, the broker to a market, and the market to the end user. That is trade, and you'll note that nowhere in there does it say that the government had any say in any of that, nor did it make any money...per se. Where the government makes it's money is in taxes on what the farmer sold the grain for, what the broker sold it for, and what the market sold it for. In the end, the guy on the bottom pays it all.

So the RTW model of factions making a boatload of money off an ever expanding trade base 'just because of the trade', is way off the mark.
What we attempted to do was create a more realistic model using 'Zones of Economic Influence', taxes (bonuses that are positive) and expenses for infrastructure maintenance (tax bonuses that are negative). Trade bonuses in this model become rare and restricted to certain buildings, and they are different for every faction.
Using Carthage as an example for this, the first step is to provide a rather large tax bonus in the major or capital city. This logically represents the city that is raking in the bulk of the taxes inevitably from all over their empire. The second step is to create a Zone of Influence, which in carthage's case would be all of the settlements it holds at game start. In these settlements markets and ports and whatever have what you call the 'normal' incremented trade bonuses that Vanilla had in it's buildings. For this reason, when you start a campaign...yes, you are raking in the cash, and people say: "Whoa! Way too much money!" But that's because you are at that time operating in your own back yard.
Then, the third part of the model kicks in.....as you expand, all the trade bonuses in settlement "X" that you just took outside your 'Zone of Influence' disappear. The market in settlement 'X' nets you nothing but a tax bonus. The reason for that is that you did not build that building, and the trade is not 'technically' (as in reality) yours. You can only TAX it. The more you expand, the more you run into this issue, and your finances start to drop. So when you hold 60 settlements in RS2, you might take in 60,000 denari (if that), whereas in Vanilla you might take in 500,000 or some ridiculous number.
The reason the income drops...no matter how viciously you tax people, is because the 'Trade Base' is still restricted to your own home territories, and the few taxes you can get out of all the others. You can tax the crap out of everyone, and you'll still only get so much out of a certain 'base' of tax payers. And, if you go on a big spending spree because you've built up a good sum of money...thinking it will get replaced next turn...you might get an ugly surprise that I've seen happen a few times. You go deep into the red. That's because you spent more than you could take in, and it will take a few years to recover. It's all sorta like the U.S. government...spending more than it can take in and running up a huge deficit.
(Jerks!)
Anyway, it isn't perfect, but it's a lot better than before. For a real challenge, never raise taxes anywhere above 'High' (for which this system was designed), and you'll see a much better 'economic challenge' in the game as well.