Nested tags = hierarchical labels
Gmail has implemented this in a very simple way for a long time.

In Gmail, “Financial” might be a tag (a tag is the same thing as a label. Gmail calls tags “labels”. I prefer the terminology “tags”.)

“Financial/Banks” is simply a different tag. The / character is fundamentally no different than any other character.

A few other tags for this example: “Financial/Investment”, “Financial/Credit Unions”, “Financial/Investment/Brokers”, “Financial/Investment/Trading Services”, “Financial/Tax/Tax Preparation”, “Financial/Tax/Accountants”.

In SOME situations, these tags are DISPLAYED hierarchically thus:

Financial
Banks
Credit Unions
Investment
Brokers
Trading Services
Tax
Accountants
Tax Preparation

In particular, along the left side where the tags are all displayed, they are displayed in this nested format. THIS IS ONLY A DISPLAY FORMAT. The actual names of the individual tags are “Financial”, “Financial/Banks”, etc…. Gmail simply recognizes the / element of the tag FOR DISPLAY PURPOSES.

I think this is the right compromise between simplicity and flexibility.

SafeInCloud could implement this without too much additional work. It would ONLY affect how the tags are DISPLAYED under the hamburger menu in the left-hand pane. In all other situations where a passcard's tags are displayed, they would continue to be displayed just as they are now; i.e., the full text of each tag is shown.

For example, the “Bank of America” passcard would probably be tagged by the User with the following two tags: “Financial”, “Financial/Banks”. That's how they'd be displayed on the “Bank of America” passcard, full-text.

Tags would also be displayed alphabetically and full-text (i.e., NOT hierarchically) in the drop-down menu from which the user checkboxes the tags he wishes to apply.

I like this compromise because it doesn't introduce any new notions of folders or categories or the like. Everything is left up to the User. If the User wants to see her tags displayed in a nested list, then she has simply to name them in a nested fashion, with /'s. Users who don't use a hierarchical naming scheme for their tags would see nothing new.