Two points of emphasis I'd like to make in this thread. First off those who're saying democracies don't work in these games probably don't have much experience with them. They've been wildly successful in other games; they're not for every alliance but for those with an intelligent member base carrying them out isn't much problem. In fact some of the most successful and elite alliances in other games were all democracies. Ultimately it's all about looking at your alliance and figuring out which type of government system will work best.
Secondly, I don't think there is any problem whatsoever with having high taxes so long as it's made transparent and the revenues earned from them are passed throughout the alliance evenly. In Rose we had our tax days which we knew about beforehand in preperation for the war. It helped out countless members get overnight war chests who otherwise would've been left !@#$ in hand once the bullets started flying. DEIC getting shredded over high taxes is less about the actual tax rate and almost entirely about the uneven distribution to it's membership.
Personally speaking if I was Diabolos or the leader of any alliance I wouldn't have ever dared taking out such substantial funds from the bank on the eve of war when doing so would've compromised the security of the littlest of members who'd be reliant on those funds. But hey, can I blame Diabolos caring about his nation so much? Not really, it's only natural for people to air towards self preservation. But on that same token the backlash from little members feeling left high and dry shouldn't be too surprising either.