Wealth tax

Every wallet and contract in the network could be charged a wealth tax to generate income

A wealth tax would be a recurring fee that is charged to every account and contract in the network based on the total amount of coins they have. This tax can then be directed towards the treasury as income. A wealth tax could create a predictable and sustainable circular economy where ongoing income is generated to support a number of different treasury responsibilities.

Moderate short term income potential (Score - 3)

A new Web3 ecosystem could introduce a wealth tax immediately or as soon as it was ready to do so. The problem with doing this in the short term is that the ecosystem would need the right funding processes in place to utilise the tax effectively. If the wealth tax is not used effectively to fund important initiatives there is a risk that community members decide to leave the ecosystem as they do not approve of how their taxes are being used. It could be important to ensure that the right system and processes are in place before the wealth tax is increased to any meaningful amount. In spite of this, even a small amount of taxation could generate meaningful and predictable income for the treasury in the short term.

Very high long term income potential (Score - 5)

A wealth tax provides a highly predictable and reliable way to generate income for the treasury over the long term. This approach does not rely on a certain amount of transactions. Instead it would always tax the same amount and just take a percentage amount from every wallet or contract that exists in the network. The main variable that could fluctuate is the value of the coin relative to other networks outside the ecosystem. If the tax is being used effectively to fund impactful initiatives this shouldn’t be a large problem for the ecosystem over the long term. For the most successful ecosystems that sustain community investment and usage, this income approach would provide highly predictable and reliable income for the treasury.

Very low income generating complexities (Score - 5)

Every account and contract in the network would be taxed proportionally based on the amount of coins they have. This is a simple taxation approach which is inclusive of everyone that holds any coins in the network. This approach could help to create a circular economy that funds the operation and maintenance of the network over the long term. The big benefit of this approach is that it incentivises the productive use of the coin in the network. If a user just holds a large amount of coins they will pay a larger amount of tax over the long term. The least useful users in the network are those that hold the coin and do nothing with it for long periods of time. This income approach converts the least useful users into contributors that help to fund the ecosystems treasury. Alternatively it incentivises them to be more productive with the money rather than just hold it. The other long term benefit with this approach is it means that transaction fees can remain very low and could be subsidised or fully paid for due to the income that is generated by the wealth tax.

Very low game theory risks (Score - 5)

Everyone pays the same proportional tax amount based on the amount of coins they have. People couldn’t easily game this system beyond minimising how many coins they hold when the tax is collected. This is a desirable outcome as people are then only incentivised to use the coin for when they need to use it rather than trying to increasingly hoard larger and larger amounts of it. A wealth tax would help with increasing the velocity of coins exchanging hands and being used across the network, which means productive usage of the coin, such as for buying goods or services or for investing into different businesses.

Low transaction deadweight loss (Score - 4)

Adding a wealth tax or increasing a wealth tax could result in people deciding to avoid the network due to the tax. This in itself could mean a reduced amount of transaction volume. The wealth tax doesn't necessarily get charged to people if they use the network and immediately use all of their coins for exchange or investment. The impact on the end user is minimal over short periods, such as usage for a few days or weeks. The counter argument is that the wealth tax could be used to subsidise the node operators and mean a reduction in transaction fees. This could have a positive impact on transaction volume. So an increase in wealth tax could actually lead to an increase in transaction volume rather than less. Situations where this tax could more likely cause deadweight loss is if the wealth tax was too high and people avoided the network entirely.

Total score = 22 / 25