Entering a 1 allows you to set a new tax rate for the next season. This rate will remain at that level unless changed. The percentage you raise or lower taxes is the inverse percentage you raise or lower loyalty: raise taxes 10%, from 9% to 9.9% will lower current loyalty 10%.

Raise your taxes slowly. As you raise Taxes the fief's Loyalty will go down. If you jump the tax level too much it's possible the fief will go into rebellion.

Taxing the fief over 20% (15% after the plague occurs) is not wise as it will cause loyalty to drop no matter what you do and incurs the risk of spontaneous rebellion.

If a newly captured fief is in lousy shape. usually very low loyalty, and likely to rebel anyway, you set taxes to 50%, quell the fief the instant the fief rebels, and drop taxes to 20%(15% after the plague)  immediately. It is a quick and effective fix.