Chapter 1: What events led to the Valentine's Day Massacre and its significance?
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February 14th, 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. 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.
The leader in Chicago's St.
Valentine's Day Massacre, turned by police the most dangerous man alive, was sought over the nation today. No arrests were made, but when George Moran is asked about it, he doesn't hesitate. He says, Only Capone kills 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.
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.
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Chapter 2: How did Prohibition create a boom for organized crime?
You couldn't get people to testify. You couldn't keep people alive who were going to 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, Direct Elmer to get Capone. If you're thinking, OK, 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. 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 Abdelfattah. And I'm Ramteen Arablui.
On this episode of ThruLine 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.
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Chapter 3: What role did the IRS play in hunting down Al Capone?
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 U.S. 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. We're 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 of 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 I. The income tax gets much bigger very quickly. The top rate went from 6% to like 77%. 77%. 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.
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Chapter 4: How did Elmer Irie's approach transform the IRS?
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 off 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 a 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 answered, 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.
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Chapter 5: What legal changes occurred regarding taxation of illegal income?
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 a legal 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 in Chicago's St. 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 is...
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 to hold 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 going to do this investigation right. We've got to 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.
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Chapter 6: How did the Great Depression influence tax policies in America?
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's 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 ThruLine on NPR.
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Part 2. 99 and 2 3rds. 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.
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Chapter 7: What was the impact of the Victory Tax during World War II?
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 J.P.
Morgan Jr., with a lot of money, rubbing shoulders with the elite. They even went to Harvard around the same time. And after college, J.P. Morgan 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... Roosevelt said the problem was too much government and he was going to cut it back.
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Chapter 8: How did public trust in the IRS evolve through the years?
You're just searching for scapegoats. And then it was discovered in the hearing. J.P. 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 these richest people in America is not paying any taxes. And J.P. 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 Mellon that three presidents served under Andrew Mellon. 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 Mellon.
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