This will encourage people to not use the in-game currency to store wealth.

No economy in the real world taxes your capital. A more realistic way is to tax income – not drops (as that doesn't make a difference), but sales between players, guild payments and so on.

Actually, the only way to keep inflation down is to stop providing free drops. Every drop is adding money to the game world. But that means you have to come up with a fun gameplay model other than the grind for XP and items that most MMORPGs end up with.

That's right. Drops are minting money every time anyone kills a mob. Missions mint money every time that lonely farmer pulls a fistful of gold out of his pocket and pays another adventurer three times the value of his house to rescue that same cat from that same tree.

Economies in MMOs are fake. To make them real would require you to stop paying players for butchering mobs and to stop paying players for doing something nice. EVE has a good economy in place, but it exists alongside the hunting and mission-running economies, and there's no way for honest trade and manufacture to keep up with the fake payouts that people get when they blow up ships that magically spawn ex nihilo in the middle of nowhere.

I think that would discourage casual players as anyone who only plays a few hours a week would have nothing,
I can think of three ways to prevent inflation
1: make sure than the amount of resources in the game are finite, in that there’s no way to farm a limitless amount of money
2: use supply and demand, instead of farming money the player have to farm some resource but if it becomes over farmed its value decreases and higher level player dont bother with it, but other resource values remain stable
3: have prestige items like houses or character decorations that will allow higher-level player to spend money on items that don’t add to inflation or make them overpowered

I hate it when people unfairly tax the rich people more.

Here's an idea I was playing around with:

There are no gold drops in the overworld, but the overworld is where money is spent by players. Most crafting resources are found in the overworld.

Gold and rare resources are only found in instanced dungeons. Say there are dungeons A-J, each having 100 levels. The dungeon levels are randomly generated. A-J designates "style" of dungeon, difficulty, etc. There is a finite amount of gold that can possibly be acquired by a player by dungeon crawling. Say you get 50 gold on level 5 of Dungeon A, that is subtracted from the amount of gold your account can gather from dungeons. Also, no gold will ever be found at a level lower than 5A. Likewise there is a finite amount of rare resources that a player can dredge up from dungeons.

There would probably be rare loot, also finite. The loot and resources would be handled by some kind of point system, like "player has 10000 rare resource points. having found (and taken out of the dungeon) 10 logs of blackwood, his (account based, per "shard") rare resouce points are reduced to 9950."

That's the gist of it. Feedback?

The only way to prevent overvaluing of items and money horders is to create as many ways as possible to pull out the money being put into a world.

Item wear is a very good way to make sure that rich players have to spend money, making the repair cost equivalent to the price of the item, so therefore, and expensive sword would cost alot in terms of repair, while a cheap dagger that every begginer starts with would be only 1 or 2 gold to repair.

Also, a help-a-noob system, where high level players get access to special items and areas, simply by giving money to a begginer and showing them around, that type of system was very well implemented in Knight Online, as it made sure that to the rich players, they had a use for their money.

Adding more high level items to encourage the rich to buy more stuff also helps, especially if the item can only be bought from a store, rather then crafted.

But then, if you take too much money out of the economy, as Endless Online somehow managed, moeny can become too overvalued, and items that are actually relatively easy to get at the right level, become excessively expensive. (IE the D-aromour in EO sold for over 5K in most cases).

Taxwise, I think maybe that sort of thing could apply to users making X amount or more in their trades each week, and Guilds could always do with taxation.

At the end of the day, the only way to balace the economy is to watch your community closely, and try to stop players from winding up with no use for their money.