Throughline - The Tax Collector

Episode Date: May 15, 2025

Gangsters, banksters, and politicians. Today on the show, how the hunt for Al Capone helped turn the IRS into one of the U.S. government's most powerful tools — and most effective weapons.To access bonus episodes and listen to Throughline sponsor-free, subscribe to Throughline+ via Apple Podcasts or at plus.npr.org/throughline.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey, it's Rund. In the latest ThruLine Plus bonus episode, I'm sharing a deleted scene from one of our recent episodes. Join ThruLine Plus now to listen to that and hear other behind-the-scenes stories in our monthly bonus episodes. Go to plus.npr.org slash ThruLine to find out more. February 14, 1929. Valentine's Day. Around 10 in the morning, a Cadillac pulls up to a garage on the north side of Chicago. Four guys jump out of the car. Two are dressed in police uniforms.

Inside the garage, they find seven men, six of whom are members of a gang led by George Bugs Moran, who runs things on the North Side. Cops come around all the time looking for a bribe, just the cost of doing business. Moran's men do as they're told, hand over their guns, line up against the wall. But then, suddenly, Thompson machine guns appear from under the coats of the cops, and they start firing. appear from under the coats of the cops, and they start firing.

Seventy rounds later, Moran's men lie slumped on the ground, in a pool of their own blood. The shooters get back in the Cadillac and drive away. It turns out they weren't cops, and when the actual police arrive on the scene, they find one man barely still alive. When asked who had him shot, he replies,

No one shot me. Three hours later, he dies. And the question remains, who was responsible for this? Newspapers around the country seize on this story, calling it the Valentine's Day Massacre. No arrests were made. But when George Moran is asked about it, he doesn't hesitate. He says, Only Capone tells like that.

Alphonse Al Capone, his main rival in Chicago, also known as Scarface. There were other kingpins who were just as large, but Al Capone, man, he was like the poster child. are just as large. But Al Capone, man, he was like the poster child. Capone had moved to Chicago at the start of prohibition in 1920. Suddenly, they take an industry that is big and lucrative, the alcohol industry in the U.S., and they make it illegal. And there's immediately a booming market for illegal alcohol. This is Joe Thorndyke, historian for Tax Analysts, a nonprofit provider of tax information. And in places like Chicago, this was very evident.

Chicago was an ideal place to build a bootlegging empire. A big city, centrally located, with notoriously corrupt law enforcement. But it was also true in almost every big city. Prohibition didn't start organized crime in the early 1900s. There was this culture of corruption. So they already had the infrastructure. This is Paul Camacho. He's a retired special agent for the IRS Criminal Investigation Division.

And he's on the board of directors at the Mob Museum in Las Vegas. But prohibition came in, it was like the goose that laid the golden egg. These people get really rich. They could buy the protection of police officers, of prosecutors, of judges. They could also threaten all of those same people with violence. They had their fingers on the levers of power. Al Capone really knew how to pull those levers. And was essentially considered untouchable.

You couldn't get people to testify. You couldn't keep people alive who were gonna testify. There had been organized efforts to take him down for years. At one point, there was even a $50,000 bounty on Capone's head, the equivalent of close to a million dollars today. But no one had ever succeeded. Just days after the Valentine's Day massacre, the gruesome details and photos still fresh in people's minds.

A new president took office named Herbert Hoover, determined to clean up the streets of Gangland, Chicago. Herbert Hoover made it his top priority to get Capone. And he caught wind of someone in the Treasury Department at the IRS who might be the guy to do it, Elmer Irie. So he calls up Elmer's boss, the Treasury Secretary, Andrew Mellon, and tells him... ...to direct Elmer to get Capone. If you're thinking, okay, wait, let me get this straight. You're saying the IRS, the boring agency

everyone loves to hate, that's who was put in charge of hunting down the most dangerous man in America? Yeah, that's what we're saying. The IRS is a law enforcement agency, which isn't usually how we think about it. Yeah, that's what we're saying. The IRS is a law enforcement agency. Which isn't usually how we think about it. The agency that collects our taxes every year. And where do our tax dollars go?

So on some level, taxes pay for government. Government offices and salaries, but also government services. They pay for that paved road you drive on to go to work, the public school your niece goes to, the social security check your grandparents get, and a big chunk pays for Medicare and the military. You know, they pay for everything. Justice Oliver Wendell Holmes said that taxes are the price we pay for civilization. But for a lot of American history, up until the early 20th century, we didn't have a

permanent income tax. The federal government paid for everything mainly using money collected from tariffs and excise taxes on various goods. Keep in mind, everything back then was a lot fewer things. There was no social security, no unemployment insurance, and a much smaller military. But as the world changed rapidly, the country grew just as fast.

Suddenly, new problems demanded new solutions from the federal government. And it was at that moment that Elmer Irie and the IRS were instructed to get Capone. I'm Randa Abdel Fattah. And I'm Ramtin Adabluy. On this episode of Throughline from NPR, the hunt for Capone helps launch a new era when

tax collectors were on the front lines of a war against lawlessness from back alleys to the halls of power, transforming the IRS from an obscure federal agency to a powerful, sometimes scandal-ridden one that helped make the federal government into what it is today. Hi, this is Linnea calling from beautiful Bend, Oregon, and you're listening to Three Lines from NPR. Thanks. This message comes from WISE, the app for doing things and other currencies. With WISE,

you can send, spend, or receive money across borders, all at a fair exchange rate, no markups or hidden fees. Join millions of customers and visit WISE.com. T's and C's apply. Hey, it's Rund. In our latest bonus episode, we hear from our producer, Lawrence Wu, about the world's first automatic machine gun and the lengths he took to find out exactly what it would have sounded like in a 19th century battle. Listen now and get sponsor free listening for all of our episodes by signing up for ThroughlinePlus at plus.npr.org slash throughline. breeze. Every episode will break down the day's headlines into totally normal language and make sure that you walk away understanding what the day's news might mean for you. Take a deep breath and give politics another chance with the NPR politics podcast available wherever you get your podcasts.

Part one, the giant killers. We in the Treasury Department were somehow chosen for the job of incarcerating Alphonse. I couldn't help wondering why a Treasury Department unit should be assigned to nab a murderer, a gambler, and a bootlegger. Elmer Irie wasn't who you might expect to lead the hunt for Capone. He was kind of like a teddy bear type guy. He had this folksy charm. So when Elmer's boss, Treasury Secretary Andrew Mellon, got that call from the president himself directing him to get Capone, Elmer was confused.

Anyway, Mellon was my boss. Ergo, I said, yes, Mr. Mellon, we'll get right on it. Elmer's middle name was Lincoln. And yes, he was named after that Lincoln. His dad was a huge fan. Elmer would be, too. Throughout his life, he was known to hand out pictures of Lincoln, and drop quotes attributed to him into conversation.

"...nearly all men can stand adversity, but if you want to test a man's character, give him power. To Elmer, Lincoln represented what it meant to really serve in government. Where country mattered more than anything else. Elmer took these principles more to heart than his father, who abandoned the family when Elmer was still a kid soon after moving them from Kansas City to Washington, D.C. His mission in life was to support his mom and his younger siblings. He got a job as a stenographer at the post office in D.C. and worked his way up to becoming

a postal inspector. Now, there's a big footnote here that you have to understand. The one beacon of light in the federal law enforcement back then was the US postal inspectors. They could trace a fraud to a penny. That's right. The most impressive crime fighting cops worked for the post office. Because at this time, the early 20th century, more and more people were moving to cities. Industries were booming. Life was changing fast. And so if say you had a stock trade you wanted to make,

it went through the mail, needed to pay your rent or water bill, mail, were waiting on a big shipment of rugs, you get the idea. So it was important that the government made sure that that agency was free as much as possible fraud, waste and abuse. That's where Elmer cut his teeth. He was a humble guy, worked hard, and he became a very good investigator and well respected. And he might have spent his career in the Postal Service had things not taken an unexpected turn. World War I was brewing, and the U.S. had just ratified the 16th Amendment,

which restored the income tax. It's viewed as a way to make the tax system more fair. The income tax had only been used a couple times before, mainly during the Civil War, to fund the Union's war effort. When that war ended, so did the income tax. But some Democratic and Republican congressmen had been pushing ever since to bring it back. They didn't think we should be relying so much on tariffs, which at the time were the

main way the government got its money. They thought tariffs put too much of the burden on consumers and farmers, led to unstable trade relationships with other countries, and unfairly favored industrialists and the wealthy. And once the U.S. entered the war, the income tax proved vital. There's this tremendous need to fund the government to fight World War One. The income tax gets much bigger very quickly. The top rate went from 6 percent to like 77 percent. Seventy seven percent.

When I say top rates, that was for people who were making a lot of money. That's a huge portion. When I say top rates, that was for people who were making a lot of money. That's a huge portion. Some of the people being taxed the most were ironically making that money from the war itself. The media labeled them war profiteers, businessmen that were providing the military equipment, the goods, everything needed for the war. And they became some of the most wealthy people in the country.

— People like Pierre S. Dupont, Charles M. Schwab, and J.P. Morgan, Jr. And some of these so-called war profiteers? — They had the temerity to bribe tax collectors and have them turn a blind eye and not pay taxes. And it became an embarrassment for Treasury. After the war ended in 1918, the income tax rates were significantly reduced. But those wealthy tax evaders were getting all scot-free.

So officials at the Treasury Department were trying to think of a way to improve the image of the IRS. How could it get the kind of reputation the Postal Service had? And the light bulb goes off. They went to the Postal Service and took one of their senior leaders by the name of Daniel Roper and they bring him over and he becomes the commissioner of IRS. Without consequences, what's a person's incentive to pay?

So then Roper decides he needs to set up a special division to specifically investigate tax evasion and root out corruption in the department. And he asked one of his assistants, well, who do you recommend to run this division? They answer, well, how about this Elmer guy? He's well respected. He's a rising star, and he seems to be a guy that everybody likes to work with. And so they offered him the job. It's 1919. Elmer Irie recruits six of his old colleagues, other postal inspectors, and together they begin building this new unit of the IRS, the Intelligence Unit. And then this tremendous loop is thrown

on Elmer and Daniel Roper. And that is in 1920, the 18th Amendment, Prohibition. We sat face to face in Ropa's office in the Treasury Department. I broke the glum silence with Mr. Ropa, they can't do this to us. Ropa nodded and answered, they certainly can't, but they have, and I'm afraid you're stuck. Yes, I guess we are stuck, Mr. Ropa. No, Mr. Ivory, we're not stuck, you're stuck.

Me? I'm resigning. Overnight, the production, transportation, and sale of alcohol was illegal everywhere. No beer, no wine, no whiskey, nothing. And people didn't like it. It led to a whole underground economy. Speakeasies, moonshiners, and of course, organized crime.

The mob, who were making a lot of money, none of which was being taxed. This was a huge problem, and none of the government agencies had wanted to be in charge of policing it. So when the Treasury Department was forced to oversee the new Prohibition Service, Daniel Roper left his post. But Elmer had a family to feed, so he stuck it out. All of a sudden, the responsibility for policing corrupt Prohibition agents was now under Elmer

Ivey. Prohibition agents were supposed to be reigning in this massive black market, but because demand was so high, a lot of them had been hired with no qualifications, and corruption was rampant. Prohibition agents showing up to their jobs wearing diamond rings, fur coats, being chauffeured to their jobs. I think a clue as to just how complicated this job became

can be found in the following dreary statistic. From 1920 to 1928, Just how complicated this job became can be found in the following dreary statistic. From 1920 to 1928, we fired 706 prohibition agents for larceny and prosecuted 257 for same. Elmer led this sweep of government corruption. He's starting to get attention. People are like looking at him like, whoa, who is this guy? By the mid-1920s, some lawyers and government officials began pushing for criminals to be

subject to tax evasion charges too. Because so much money was being funneled through their criminal enterprises during prohibition. So in 1927, a case went before the Supreme Court. And in the decision, which Justice Oliver Wendell Holmes wrote, the court ruled that individuals must report and pay taxes on illegal income. After that decision, Elmer was basically told, Hey, the Supreme Court has now determined that illegal income is taxable. It's legal. Knock yourself out. Go after these kingpins.

Use the tax law. Now Elmer had to face down the criminal underworld. The leader of the Chicago Valentine's Day massacre turned by police the most dangerous man alive. So when they started the investigation on Capone, what they were trying to show was, well, how much money did he have that he didn't report? So they followed the paper trails, and then started interviewing people. — You would have to go to the bank, and that might lead to somebody that held an account.

You had to go interview that person. — Pretty quickly, Capone caught on that Elmer and his men were coming around asking questions. — Witnesses were ending up dead. — And then Elmer sent his best agent undercover. — Then they were able to infiltrate the Capone organization. It was a dangerous situation for everyone. And at one point, Capone puts a hit out on a few people

because of the investigation. But Elmer remained steadfast. He was like, we're gonna do this investigation right. We gotta follow this to the letter of the law. — And just as Elmer's crew was closing in on Capone... — Wall Street was easy street for everybody. —...the stock market crashes. — Panic gave way to despair.

Overnight, the richest country in the world had spawned bread lines. — The entire nation is sent into a tailspin. The entire nation is sent into a tailspin. It sort of signals the beginning of the Great Depression. By the time Capone went to trial two years later, in 1931, the country had sunk deep into the Great Depression. Still, as the trial unfolded, all eyes were on Capone, the man everyone thought was untouchable. Day after day, rows of photographers swarmed him outside the courthouse. Eager readers followed along as witnesses took the stand, and through the papers, Capone

made his case to the public, at one point saying, I've been made an issue and I'm not complaining. But why don't they go after all those bankers who took the savings of thousands of poor people and lost them in bank failures? Capone gets convicted of tax evasion. Elmer's there as the judge reads the sentence. Right after, soon after, there are lines of mobsters at IRS buildings. Collections

from unpaid taxes spiked. And Herbert Hoover is so thrilled. He's giddy. In a sea of losses amid the Great Depression, this was one bright spot for him and the country. And it makes people feel good about the tax system too. It's like, yeah, at least they're paying their taxes. Hoover was hungry for more. He instructs Elmer and his team to go on a massive crime sweep across the country. This small band of elite financial investigators

just took down one kingpin after another. And they got so good at it that the media called them the giant killers. In between chasing down kingpins, Elmer and his men also managed to help the famous pilot Charles Lindbergh solve the kidnapping and killing of his one-year-old son by tracing the ransom money. Everyone in America had been following the kidnapping. And now a lot more people knew Elmer Irie and they loved him. The public viewed Elmer as Uncle Elmer. He was this unassuming, church-going, all-American

family man that had this immense courage and competence to take down these organized crime figures. And he did it in such a fair way, you know, he became the brand. The brand of the IRS. And with life getting harder every day, the public was starting to wonder if maybe Capone had been right about something. Why don't they go after all those bankers? Weren't they just gangsters by a different, supposedly more legit name? Some papers even started calling them banksters. And so in the early 1930s, a lot of politicians are looking hard at that to try to figure out what role did finance

and did the Wall Street bankers play in causing this depression? Coming up, the banksters are put in a hot seat. Hi, this is Linda Turner from Huntington, West Virginia, and you're listening to Thrilline on NPR. Are you like me suddenly using words like conclave, cardinal, and papa bile in casual conversation? Well, friend, you too may be pope-pilled. I have a whole list. I was starting with like 25, 30 names and I was like whittling it down.

I'm imagining you like Claire Danes in Homeland, like the full board, like some strings connected. For everything you need to know about picking a new pope, listen to the It's Been A Minute podcast today. Keeping up with the news can feel like a 24-hour job. Luckily, it is our job. Every hour on the NPR News Now podcast, we take the latest most important stories happening and we package them into five-minute episodes so you can easily squeeze them in between meetings and on your way to that thing. Listen to the NPR News Now podcast now.

On this week's Wild Card podcast, Wanda Sykes says she can have a hard time understanding God. What is the plan, man? What is the lesson here? Yeah, yeah. It's like, oh boy, you are in a pickle right now, God. What you gonna do about this? I'm Rachel Martin.

Wanda Sykes is on Wild Card, the show where cards control the conversation. Part two, 99 and two thirds. Who was your first witness? Mr. J.P. Morgan. Mr. Morgan, will you be sworn? Certainly. Hold up your right hand.

You solemnly swear that you will tell the truth, the whole truth, and nothing but the truth so help you God. I do. It's Tuesday, May 23, 1933, about four years after the stock market crash. Unemployment is at 25%. Bread lines stretch around city blocks. And JP Morgan Jr. appears before a Senate banking committee who has called this hearing to investigate.

What did Wall Street do and how bad was it? You know, can we blame them for this depression? And JP Morgan Jr. He is the archetypal Wall Street banker. — Not only had he dominated Wall Street for decades by that point. — He played a pivotal role in international finance through this whole period and was accused by many of being a war profiteer in World War I. He made an enormous amount of money doing that. You could just as easily make the case that he, you know, saved the allies from defeat.

Do you know what the aggregate amount was of those deposit accounts at the end of the last fiscal year? $340 million. This investigation was picking up steam as a new president entered the White House, the man who had beat out Herbert Hoover in the 1932 election, Franklin Delano Roosevelt. — But his earlier career and his earlier life, you might not necessarily have predicted that this would happen.

— FDR had grown up not all that differently from JPMorgan Jr., with a lot of money rubbing shoulders with the elite. They even went to Harvard around the same time. And after college, JPMorgan Jr. goes into finance like his dad and Franklin Roosevelt. Goes into politics thinking, this is the family business. My cousin, Teddy Roosevelt, he was a Republican. I'll distinguish myself by being a Democrat.

He becomes Assistant Secretary of the Navy for a little while and then tries to run for Vice President in 1920. Loses. And within a year, he tragically is struck with polio and is no longer able to walk. By the way, this is Jason Scott Smith. He's a historian at the University of New Mexico, who's written two books about FDR and the New Deal. This kind of illness striking someone who was so wealthy and seemingly led such a charmed life must have humanized him to many Americans. Roosevelt became governor of New York in 1929, just before the stock market crash. And during the first few years of the Great Depression, he watched as the Republican administration

of President Hoover made a bad situation worse. Raising taxes on businesses, which meant they had less money to invest. And individuals, which led to more unemployment and fewer customers at stores. Raising tariffs to protect American jobs, which backfired and triggered a global trade war, and refusing to give direct aid to people, leading to a crisis of hunger and homelessness. Good evening, my fellow Americans and friends of the radio audience. I hope during this campaign to use the radio frequently.

So Roosevelt decided to throw his hat into the ring for the presidency. In this time of unprecedented economic and social distress, the Democratic Party declares its conviction that the chief causes of this conviction... Roosevelt said the problem was too much government and he was going to cut it back. First, an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagants to accomplish a saving of not less than 25%. And his running mate accused Hoover of leading the country down the path to socialism. This is Lawrence Reed,

President Emeritus of the Foundation for Economic Education. But once he took office, the kinds of advisors he listened to were the ones telling him that, no, we've got to go whole hog for as much government spending and relief programs as we can. That's the only way to get out of the depression. So that's the way he went. In the working out of a great national program that seeks the primary good of the greater number, it is true that the toes of some people are being stepped on and are going to be stepped on. This new deal would offer direct relief to the poor, infrastructure programs to put people back to work, and a whole new way of doing business where the government,

not the private sector, would lead the way. — The inefficiency was the point. You wanted to provide jobs, you wanted to provide government paychecks to prevent an uprising. It's a way of using the power of the state to support the private economy in a more effective and regulated fashion. In a sense, I would say the New Deal is trying to save capitalism from the capitalists and for the capitalists.

Who represents the capitalist? J.P. Morgan Jr., we can see him as a kind of symbol of this older money opposition to Franklin Roosevelt, the Democratic Party, the New Deal, and the kind of tension that reflected the broader class divides that existed during the Great Depression. Which brings us back to JP Morgan Jr.

sitting in the Senate Banking Committee hearing. That bookkeeping process, do you count deposits as liabilities? — Do I? I do not think that question is very necessary, Senator. — The critics of this are saying, you know, this is just blatant politics. This is— you're just searching for scapegoats. — And then it was discovered in the hearing. JP Morgan and his partners hadn't paid any taxes for a couple of years in the early 1930s. People were outraged.

They were like, oh my goodness, I cannot believe that one of the richest people in America is not paying any taxes. And JP Morgan says, hey, no one regrets that more than I do. I wasn't paying taxes because I was losing money. How could I pay taxes on money I wasn't making? In other words, because he hadn't made a profit those years after the stock market crash, technically, he didn't have any taxable income and hadn't evaded taxes.

Who do you blame in that moment? Do you blame the taxpayer, J.P. Morgan, who's taking advantage of the law as best he can to minimize his taxes? Or do you blame the law and say, hey, Congress shouldn't have written the law like this in the first place? You know, you can go either way on that. The committee interviewed a series of other bankers, and by the end, it was clear. Unchecked stock market speculation was one of the factors that had sent the economy and the American banking system into collapse. So Congress quickly moved to pass a series of laws to regulate the stock market and put

more checks in place on bankers to prevent them from gambling with people's money. But the tax question remained. What is the moral status of tax avoidance? It may be legal, but is it moral? FDR took this up as his personal fight. To him, the aggressive tax avoidance, even when legal, is just as worthy of scorn and political attack. Because you think about it, that's the New Deal. The government is relying on the tax system. Thing is, most of the government's revenue to fund New Deal projects like new schools,

new sewers, new sidewalks, new airports, new courthouses, came from deficit spending and from excise taxes. Taxes on goods like tobacco, cars, radios, and alcohol as prohibition ended in 1933. Not the income tax, which only about 5% of the population at this point, the wealthiest of the wealthy, were paying. But for Roosevelt, the income tax was symbolic, a way to rebuild trust with the public and restore that feeling people had when Elmer Irie took down Capone, that everyone was expected to pay their fair share. And he wants to name names.

One of the names Roosevelt tells the IRS to investigate is Elmer Irie's former boss, Andrew Mellon. Andrew Mellon was a very prominent and very wealthy man. Everybody knew who he was. There is an old joke about Andrew Melon that three presidents served under Andrew Melon. He'd been Treasury Secretary for more than 11 years. Basically from the time Prohibition began. And what did he believe in?

He believed in cutting taxes, more than anything else. The Roosevelt administration made me go after Andy Melon. I liked Mr. Melon, and they knew it. Elmer initially objects to the investigation. He's like, there's nothing there. And then he gets a phone call from the new Treasury Secretary, Henry Morgenthau, a close friend of Roosevelt, who says,

Iri, you can't be 99 and two thirds percent on that job. Investigate Mellon. I order it. Everyone was convinced, I think, of Mellon's innocence, except perhaps for Franklin Roosevelt and Henry Morgenthau. It was politics driving this. Elmer showed him, okay, if you ask me to do this, I'll put my best agent on it, and eventually showed the judge that the guy was innocent beyond a reasonable doubt. If the case is not there, he's going to make doubt. If the case is not there, he's gonna make it known that the case is not there.

But it is telling that if he was a different person who got that request and understood the subtext, like we don't like this guy, find something on him, what havoc that could have wreaked on the government. Oh yeah, I mean, look, he even talks about it, that an investigation could destroy a person. And he preached to agents, follow strictly the rules of the constitution

and the laws that govern criminal investigations. That was what it meant to be a civil servant. was what it meant to be a civil servant. In 1935, Roosevelt started to gear up for his first reelection campaign. That year, Roosevelt pushes through the Social Security Act and the so-called wealth tax, which raised the federal income tax on the highest income earners. Those in the very highest tax bracket had to pay 79%. And there was no war to fund this time. Now, full disclosure, that 79% only applied to one person. It was John D. Rockefeller Jr.

Even JP Morgan Jr. who had a lot of money didn't have that kind of money. So is that a meaningful tax? Well, it's not meaningful the amount of revenue it's gonna raise, but it might be meaningful in terms of the message that it sends. These kind of rhetorical attacks on the wealthy were terrific politics.

He was, over time, seen by the wealthy as a kind of traitor to his class. Even though this tax crusade against the wealthy was resonating with people, FDR was feeling uncertain about his re-election, and he began asking Elmer to investigate more and more people who could be fairly described as his political opponents. Among them were a Democratic senator from Louisiana named Huey Long, who was a threat to him in the primaries, a Republican congressman from Roosevelt's home district, Hamilton Fish, and Moe Annenberg, owner of a media company that was vocally critical of FDR and the New Deal.

Paul Camacho says it's unclear how much these investigations were politically motivated, because some of them were suspected of actual criminal wrongdoing. Lawrence Reed cites this as counter-evidence. Elliott Roosevelt, the son of the president, wrote a very revealing book about the family's years in the White House. He points out in that book, quote, my father may have been the originator of the concept of employing the IRS as a weapon of political retribution.

We know now that government by organized money is just as dangerous as government by organized mob. is just as dangerous as government by organized mops." Roosevelt won re-election in 1936, and he would go on to win re-election an unprecedented two more times. They are unanimous in their hate for me, and I welcome their hatred! Cheers Nowadays, we are assailed by a chorus of hurried threats. By the late 1930s, talk of war began to fill the airwaves and fascism was taking hold of Europe. Some Americans angry at Roosevelt began to call him the New Deal dictator. He proposed a 99% top income tax rate.

That was extreme and didn't actually get approved by Congress. But for the business class, this tax crusade and the New Deal were a direct threat to their bottom line. And more than that, a threat to American innovation and entrepreneurship. They're saying we're not going to take all the risk and have almost all the reward taken by the government. And whether you saw it as a good or a bad thing, this is a radical transformation of the federal government.

Exactly how much New Deal programs actually fixed the economy is hard to measure. Unemployment rates were still high and businesses still struggling by the time World War II began. But it did restore hope among many people that they were not alone in the struggle, that the government was growing to meet their needs, that taxes were the engine for that growth, and that trustee Uncle Elmer was making sure everyone paid their fair share. Gangsters, banksters, and politicians alike. Coming up, that trust is put to the ultimate test. Hello, my name is Tamara.

I'm in New Orleans and you're listening to Throughline on NPR. World news is important, but it can feel far away, not on the State of the World podcast. With journalists around the world, you'll hear firsthand the effects of US trade actions in Canada and China, and meet a Mexican street sweeper who became a pop star. We don't go around the world, we're already there. Listen to the State of the World podcast from NPR every weekday. Part Three New Deal Dictator Japan like its infamous Axis partners struck first and declared war afterwards. Costly to our Navy was the loss of war vessels, airplanes and equipment, but more costly to Japan was the effectiveness of its foul attack in immediately unifying America in its determination to fight and win the war thrust upon it and to win the peace that will follow.

On March 9th, 1942, just a few months after the U.S. entered World War II, Elmer Irie received a letter from Franklin Roosevelt himself. We were not really winning the war and FDR was not just sending letters randomly out to people. This is Paul Camacho. He's a retired special agent for the IRS Criminal Investigation Division. And so he's writing this letter. Dear Mr. Irie.

And telling Elmer, you know, I'm looking back at your career when you first started. I feel I should take a moment to tell you of my pride in the work of the Intelligence Unit. As the years have gone by, the Intelligence Unit has become a shining mark, not only of incorruptibility, but what is just as important of A1 efficiency. And I just want to thank you, because going into this tax season. On this coming March 15th,

we will be unpopular with more millions of taxpayers than ever before. I mean, they're in a perfect position for an agency to hate. Back then, March 15th was Tax Day, and Roosevelt, needing money fast to fund World War II, had pushed through the Victory Tax of 1942, hoping the goodwill and trust Almer Irie had built up with the public would help this new tax land with them. Victory tax plan adopted.

All individuals earning more than $12 a week affected. The Baltimore Sun. Suddenly millions and millions of Americans who've never had to pay income taxes are suddenly paying them for the first time. This is Joe Thorndyke, historian for Tax Analysts, a nonprofit provider of tax information. And that's how the federal government manages to take what they call a class tax

and turn it into a mass tax. A mass tax. Because now it wasn't just the rich being taxed, it was also everyday middle-class Americans that had to contribute. In 1939, only about 5% of American workers were paying income tax. By the time victory tax came along, it had risen to 75%. Are Americans angry about this?

You know, war has a way of holding that kind of taxpayer anger and abeyance for a while. Patriotism really matters. Like, hey, our boys are dying in the field, in the trenches, in Europe, in the Pacific. The least we can do is contribute our dollars to support them. And the government builds a whole PR campaign around this new tax, partly to make sure people comply and partly because… People who had never done it, they didn't know how to do that. I paid my income tax today.

I'm only one of a million more whose income never was taxed before. Art tax I'm very glad to pay. The federal government commissioned people like Irving Berlin to write songs. This is Jason Scott Smith. He's a historian at the University of New Mexico who's written two books about FDR and the New Deal. They were all about how, hey, I've paid my income tax today. Isn't this great?

See those bombers in the sky? Rockefeller helped to build them, so did I. I paid my income tax today. And there was this famous campaign that they rolled out using Donald Duck. Are you a patriotic American? Yes sir. Eager to do your part? Yes sir. Then there's something important you can do. Oh boy oh boy oh boy, I'll do it. Your income tax. In income tax. Yes, your income tax. Now it's one thing to ask people to pay their taxes and have a cartoon explain how to file them and a whole other thing to actually send your tax money to the government. There was a

huge fear that these new taxpayers would, one, not realize that they were supposed to pay in the first place and just wouldn't file returns, or two, wouldn't have enough money saved to pay the taxes when the time came. There were many people in Washington who knew that it might become increasingly difficult to collect the money.

The IRS wasn't staffed up enough to keep track of that many new taxpayers. And so policymakers recognized early on that they're going to have to find some better way for these people to pay. And so in 1943, they thought, hey, let's put withholding in place because then we'll get it before the taxpayer ever earns it. Tax withholding. You know what I'm talking about.

That one line on your paycheck that says federal income tax and how much was automatically taken out of it. And the idea is that a little bit will be taken out of your paycheck every two weeks or every month or every week whenever you get paid. And then that will effectively pay your tax bill in pieces over the course of the year. This is the way we pay our taxes now. This was a win-win for the federal government because it did two things. One, this simplified and streamlined tax payment system meant the government

would actually get the money it needed. And two, the IRS didn't have to be the one collecting everyone's money. Instead, your boss was going to do it. The federal government is sort of deputizing employers and saying, you're going to be our tax collectors. So take that money out of the paycheck for your employee and then send it to us directly. It was a drastic step in terms of government invasiveness. If there hadn't been a war on, I'm guessing you would have seen far more opposition to withholding.

But the fact that there was and everybody was pulling for victory, that made withholding much more palatable. And a lot of people thought it would only be temporary anyway, that it would go away after the war. But there were some people who were speaking out against these new tax laws, even as the war raged on. People like Vivian Kellums. Vivian Kellums is one of my favorite people.

In the late 1920s, Vivian and her brother started a company together, based around an invention called a cable grip, which was used by bridge builders and ultimately even the military would use it to lift heavy artillery shells. And so she made a lot of money. Money that was taxable. She was rebelling by the 1940s against these sky-high income tax rates. From her perspective, she thought, I haven't done anything wrong. I've added value to society.

I haven't taken anything from anybody. I've employed people with good wages. And I helped the war effort by making these things that the Army needed for its artillery shells. She felt aggrieved and for good reason. Vivian's frustrations started coming out in newspaper articles. The Chicago Tribune reported on a speech she gave saying that withholding was quote,

a deliberate plan to keep the system of free enterprise from surviving after the war. This underground movement will not only control, but own all business. And she refused to be a part of that plan. I mean, this was quite remarkable for a woman to say, no, I'm not gonna do it. And she told her employees,

you're responsible for making your tax payments. And even though the government tells me I have to take it from you, I'm not going to do it." And she told her employees, you're responsible for making your tax payments, and even though the government tells me I have to take it from you, I'm not going to do it. Vivian traveled around the country giving speeches. And often had sizable crowds in which she argued against compulsory withholding and against big government in general. There are plenty of Americans that are upset, as they were near the close of World War II, about federal controls on prices, about shortages of meat at the supermarket. You know, the Republicans' campaign in 1946,

wouldn't you like to be able to go to the grocery store and buy something that you can afford? It was the eggs of their day. From this day, we move forward. After the war ends, Elmer Irie retires from public service. Life Magazine calls him one of the world's greatest detectives. And there was even a Hollywood movie called The Tea Man, which stood for the Treasury Man that was partly inspired by Elmer Irie and his Treasury agents. And this is where the story ends for Irie. Nearly three years after the war's end, he passes away.

But what he left behind, this tax system that he helped enforce and grow, didn't go back to the way it was before the war. Instead, all that tax money got fed into something else. We developed a national security state that was big and expensive and required a giant standing army and Navy and Air Force. In addition, you know, this is the beginning of the atomic arms race and we're developing a huge atomic arsenal. All of that is expensive and they have to find some way to keep paying for that. So the government does not shrink. It's permanently expanded by World War II. You know, there's a before and after moment in American society, and this is one of them.

Before the 1930s, Americans encountered the federal government at the post office. After World War II, Americans encountered the federal government in all aspects of their lives, from social security to federal highways. And the debates surrounding these new taxes and this new expanded role of the federal government got louder. People like Vivian Kellems made it their life's mission to fight back against the government that they thought had gotten way too big. I decided that we had to take some action and what I did was a perfectly American thing. I broke the law to provide a test case.

Vivian was invited onto talk shows. She was one of the first women interviewed on Meet the Press. And she even took the IRS to court. And I wrote to the secretary of the treasury and I told him that I had not sent any money and that I was not going to until he paid me what he owed me. And these voices coalesced into a new movement. The new right that we think about today in the 1980s and 1990s and beyond, that the origins of the new right really do lie in the 1930s and the kind of business reaction to the power of the New Deal,

the remaking of labor relations and the growth of organized labor. Jason Scott Smith says so much of how people think about the government, of the taxes they pay and of their role in all of that boils down to trust. To what extent do people trust the government to do the right thing with their tax money? To what extent do people feel like they are getting good value for their money? And without an Elmer Irie in the picture, someone to be the trustworthy face of the government. Building that goodwill has proven difficult for the agency entrusted with our taxes.

In the century since, the IRS has been embroiled in scandals, political retribution, and not everyone is always paying their fair share. So it's not unreasonable to ask, What am I paying? Who's getting away with not paying? And in our present moment, we have a president who's proud of the fact that he's avoided taxes for many years, that he knows so much about the tax code that he can do that. Today, the IRS is facing dramatic cuts. Since January, it has lost almost one-third of its tax auditors. Treasury Department officials estimate that will lead to a 10% drop in tax revenue, about $500 billion.

And some IRS employees have also chosen to resign after the agency agreed to share migrants' tax information with ICE officials. But this imperfect system is what helps keep the lights on, the roads operating, the water running. Taxes are the price we pay for civilization. There's an element of truth to that. After all, taxes do pay for the core functions of a government. To provide protection at home, a court system, a national defense,

and those kinds of things that keep order and allow for us in a free society to be prosperous. The problem has been throughout the ages that the government doesn't know when to quit. You give it an inch and it'll take a mile. And it often has done that over and over again. That's it for this week's show. I'm Rand'Abdel Fattah. I'm Ramtin Adabloui, and've been listening to Thru Line from NPR. This episode was produced by me and me and Lauren Thu, Julie Kane, Anya Steinberg, Casey Minor, Christina Kim, Devin Kadiyama, Sarah Wyman, Irene Noguchi.

Voiceover work in this episode was done by Jason Divina-Gracia, Fulton Ho, Christian Benford, Shahir Khan, and Ivan Wu. Thank you to Johannes Sturge, Edith Chapin, Nadia Lancy, and Colin Campbell. Fact checking for this episode was done by Kevin Bockel. The episode was mixed by Jimmy Keighley. Music for this episode was composed by Ramteen and his band, Drop Electric, which includes Navid Marvi, Sho Fujiwara, Anya Mizani.

And finally, if you have an idea or like something you heard on this show, please write us at throughline at npr.org and make sure to follow us on Apple, Spotify, or the NPR app. That way you'll never miss an episode. Thanks for listening.