IRS- A perfectly price-discriminating monopoly?

Going through monopolies in Economics, I came across a very strange typeof a monopoly- a perfectly price discriminating monopoly. These kind of organizations are able to capture the most amount of money they can out of the hands of a customer. Although many may argue that big corporations like Microsoft and Apple are examples of such monopolies, they often fail to do so. However, I have come up with another institution that is constructed on the policy of price discrimination. The Internal Revenue Service, better known as IRS, not termed as a ‘corporation’ can be viewed as a perfectly price discriminating monopoly from an economic standpoint.

First, let me explain IRS as a representation of a monopoly. IRS, a bureau od the Department of the Treasury, is a monopoly in a sense that it is the sole collector of tax revenue and enforcer of tax laws in the United States. The government provide the status of a monopoly to the IRS by preventing any other organization from collecting taxes. By employing different strategies and various laws, IRS tries to maximize the tax revenue while minimizing any tax evasion. This effort to maximize its tax revenue by charging every dollar is similar to the way a corporation tries to maximize its revenue. In 2012 itself, IRS collected approximately 2.5 trillion dollars.

As many of you may be aware, IRS has a progressive taxation system, that is, higher the income, higher is the tax paid by the individual. Although IRS uses tax brackets as separators between the thoughtfully divided social classes, they are still able to charge every additional dollar earned by an individual. In simple words, they are able to charge the highest amount from every person based on the income earned by him or her, which is the basic feature of a perfectly price discriminating monopoly.

The graph shown above shows the number of people at different income (or paying different taxes) levels on the x-axis and tax paid or transaction cost on the y-axis. The supply curve represents the transaction cost which are the same for every person and hence is a straight parallel line to the x-axis. The demand curve represents the tax collected at different levels of income by the IRS. The ponit of intersection, or equilibrium point, is at the level of income when the tax rate falls to zero per cent.

This may all seem to be a little odd at first. But as discussed above, IRS in itself is a perfectly price discriminating monopoly owing to its singularity and progressive taxation law. This comparision provides us an interesting way of looking at the IRS, and might help us better understand the nature of other government organizations too.