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Rund Abdelfatah
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 a 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?
Ramtin Arablouei
Newspapers around the country seize on this story, calling it the Valentine's Day Massacre.
Paul Camacho
The leader in Chicago, St. Valentine's Day massacre.
Elmer Irey
Turned by police, the most dangerous man alive was sought over the nation.
Ramtin Arablouei
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 as Scarface.
Paul Camacho
There were other kingpins just as large. But Al Capone, man, he. He was like the poster child.
Ramtin Arablouei
Capone had moved to Chicago at the start of Prohibition in 1920.
Joe Thorndike
Suddenly, they take an industry that is big and lucrative, the alcohol industry in the US and they make it illegal. And there's immediately a booming market for illegal alcohol.
Rund Abdelfatah
This is Joe Thorndike, historian for Tax Analysts, a nonprofit provider of tax information.
Joe Thorndike
And in places like Chicago, this was very evident.
Ramtin Arablouei
Chicago was an ideal place to build a bootlegging empire. A big city centrally located with notoriously corrupt law enforcement.
Joe Thorndike
But it was also true in almost every big city.
Paul Camacho
Prohibition didn't start organized crime. In the early 1900s, there was this culture of corruption. So they already had the infrastructure.
Rund Abdelfatah
This is Paul Camacho. He's a retired specialist for the IRS Criminal Investigation Division, and he's on the Board of directors at the Mob Museum in Las Vegas.
Paul Camacho
But Prohibition came in. It was like the goose that laid the golden age. These people get really rich.
Joe Thorndike
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.
Ramtin Arablouei
Al Capone really knew how to pull
Joe Thorndike
those levers and was essentially considered untouchable. 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.
Ramtin Arablouei
At one point, there was even a $50,000 bounty on Capone's head, the equivalent of close to a million dollars today.
Joe Thorndike
But no one had ever succeeded.
Rund Abdelfatah
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
Paul Camacho
top priority to get Capone.
Rund Abdelfatah
And he caught wind of someone in the Treasury Department at the IRS who might be the guy to do it. Elmer Iry. So he calls up Elmer's boss, the Treasury Secretary, Andrew Mellon, and tells him,
Paul Camacho
direct Elmer, to get Capone.
Rund Abdelfatah
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.
Joe Thorndike
The IRS is a law enforcement agency,
Ramtin Arablouei
which isn't usually how we think about it. The agency that collects our taxes every year. And where do our tax dollars go?
Joe Thorndike
So on some level, taxes pay for government.
Ramtin Arablouei
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.
Joe Thorndike
Justice Oliver Wendell Holmes said that taxes are the price we pay for civilization.
Rund Abdelfatah
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.
Ramtin Arablouei
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.
Rund Abdelfatah
And it was at that moment that Elmer Airy and the IRS were instructed to get Capone. I'm Rund Abdelfatah.
Ramtin Arablouei
And I'm Ramtin Arablouei on this episode
Rund Abdelfatah
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.
Narrator/Voice Actor
And you're listening to through line from npr. Thanks.
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Ramtin Arablouei
Part 1 the Giant Killers
Elmer Irey
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.
Rund Abdelfatah
Elmer Irie wasn't who you might expect to lead the hunt for Capone.
Paul Camacho
He was kind of like a teddy bear type guy. He had this folksy charm.
Rund Abdelfatah
So when Elmer's boss, Treasury Secretary Andrew Mellon, got that call from the President himself directing him to get Capone, Elmer was confused.
Elmer Irey
Anyway, Mellon was my boss, ergo I said, yes, Mr. Mellon, we'll get right on it.
Rund Abdelfatah
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.
Paul Camacho
Nearly all men can stand adversity, but if you want to test a man's character, give him power.
Rund Abdelfatah
To Elmer, Lincoln represented what it meant to really serve in government where country
Paul Camacho
mattered more than anything else.
Rund Abdelfatah
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.
Paul Camacho
his mission in life was to support his mom and his younger siblings.
Ramtin Arablouei
He got a job as a stenographer at the post office in D.C. and worked his way up to becoming a postal inspector.
Paul Camacho
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.
Ramtin Arablouei
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.
Paul Camacho
So it was important that the government made sure that that agency was free as much as possible. Fraud, waste and abuse.
Ramtin Arablouei
That's where Elmer cut his teeth.
Paul Camacho
He was a humble guy, worked hard, and he became a very good investigator and well respected.
Ramtin Arablouei
And he might have spent his career in the postal service had things not taken an unexpected turn.
Rund Abdelfatah
World War I was brewing and the US had just ratified the 16th amendment which restored the income tax.
Joe Thorndike
It's viewed as a way to make the tax system more fair.
Rund Abdelfatah
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 US Entered the war, the income tax proved vital.
Paul Camacho
There's this tremendous need to fund the government to fight World War I.
Joe Thorndike
The Income Tax gets much bigger very quickly.
Paul Camacho
The top rate went from 6% to like 77%.
Rund Abdelfatah
77%.
Paul Camacho
When I say top rates, that was for people who were making a lot of money. That's a huge portion.
Rund Abdelfatah
Some of the people being taxed the most were ironically making that money from the war itself.
Paul Camacho
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.
Rund Abdelfatah
People like Pierre S. Dupont, Charles M. Schwab and J.P. morgan Jr. And some of these so called war profiteers.
Paul Camacho
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.
Ramtin Arablouei
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.
Paul Camacho
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
Ramtin Arablouei
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.
Paul Camacho
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.
Ramtin Arablouei
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.
Paul Camacho
And then this tremendous loop is thrown on Elmer and Daniel Roper. And that is in 1920, the 18th amendment, prohibition.
Elmer Irey
We sat face to face in Roper's office in the Treasury Department. I broke the glum silence with Mr. Roper. They can't do this to us. Roper nodded and answered, they certainly can't. But they have. And I'm afraid you're stuck. Yes, I guess we are stuck, Mr. Roper. No, Mr. Ivory, we're not stuck. You're stuck.
Narrator/Voice Actor
Me?
Elmer Irey
I'm resigning.
Rund Abdelfatah
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 defeat, so he stuck it out.
Paul Camacho
All of a sudden, the responsibility for policing corrupt prohibition agents was now under El Mariri.
Rund Abdelfatah
Prohibition agents were supposed to be reining 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.
Paul Camacho
Prohibition agents showing up to their jobs wearing diamond rings, fur coats, being chauffeured to their jobs.
Elmer Irey
I think a clue as to 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.
Paul Camacho
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?
Ramtin Arablouei
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,
Paul Camacho
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.
Ramtin Arablouei
Now Elmer had to face down the criminal underworld. The leader from Chicago, St. Valentine's Day
Rund Abdelfatah
massacre, turned by police.
Paul Camacho
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?
Rund Abdelfatah
So they followed the paper trails and then started interviewing people.
Paul Camacho
You would have to go to the bank, and that might lead to somebody at huddle account. You had to go interview that person.
Rund Abdelfatah
Pretty quickly, Capone caught on that Elmer and his men were coming around asking questions.
Paul Camacho
Witnesses were ending up dead.
Rund Abdelfatah
And then Elmer sent his best agent undercover.
Paul Camacho
Then they were able to infiltrate the Capone organization.
Rund Abdelfatah
It was a dangerous situation for everyone.
Paul Camacho
And at one point, Capone puts a hit out on a few people because of the investigation.
Rund Abdelfatah
But Elmer remained steadfast. He was like, we're going to do this investigation right?
Paul Camacho
We got to follow this to the letter of the law.
Rund Abdelfatah
And just as Elmer's crew was closing in on Capone.
Narrator/Voice Actor
Wall street was easy street for everybody.
Rund Abdelfatah
The stock market crashes.
Narrator/Voice Actor
Panic gave way to despair. Overnight, the richest country in the world had spawned breadlines.
Rund Abdelfatah
The entire nation is sent into a tailspin.
Joe Thorndike
It sort of signals the beginning of the Great Depression.
Ramtin Arablouei
By the time Capone went to trial two years later in 1931, the country had sunk down 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, 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?
Paul Camacho
Capone gets convicted of tax evasion.
Ramtin Arablouei
Elmer's there as the judge reads the sentence.
Paul Camacho
Right after. Soon after, there are lines of mobsters at IRS buildings.
Ramtin Arablouei
Collections from unpaid taxes spiked.
Paul Camacho
And Herbert Hoover is, is so thrilled, he's giddy.
Ramtin Arablouei
In a sea of losses amid the Great Depression, this was one bright spot for him and the country.
Paul Camacho
And it makes people feel good about the tax system too. It's like, yeah, at least they're paying their taxes.
Rund Abdelfatah
Hoover was hungry for more. He instructs Elmer and his team to go on a massive crime sweep across the country.
Paul Camacho
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.
Rund Abdelfatah
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.
Paul Camacho
The public viewed Elmer as Uncle Elmer. He's this unassuming, churchgoing, 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
Rund Abdelfatah
brand of the irs.
Ramtin Arablouei
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?
Rund Abdelfatah
Weren't they just gangsters by a different, supposedly more legit name? Some papers even started calling them banksters.
Joe Thorndike
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?
Ramtin Arablouei
Coming up, the banksters are put in a hot seat.
Rund Abdelfatah
Hi, this is Linda Turner from Huntington, West Virginia, and you're listening to Throughline on NPR.
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Ramtin Arablouei
Part two, 99 and two thirds. Who was your first witness? Mr. J.P. morgan. Mr. Morgan, will you be sworn? Certainly.
Rund Abdelfatah
Hold up your right hand.
Ramtin Arablouei
You solemnly swear that you will tell
Elmer Irey
the truth, the whole truth and nothing
Rund Abdelfatah
but the truth, so help you God?
Paul Camacho
I do.
Rund Abdelfatah
It's Tuesday, May 23, 1933, about four years after the stock market crash. Unemployment is at 25%. Breadlines stretch around city blocks. And J.P. morgan Jr. Appears before a Senate banking committee who has called this hearing to investigate what did Wall street
Joe Thorndike
do and how bad was it? You know, can we blame them for this depression?
Rund Abdelfatah
And J.P. morgan Jr.
Joe Thorndike
He is the archetypal Wall street banker.
Rund Abdelfatah
Not only had he dominated Wall street for decades by that point, he played
Joe Thorndike
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.
Rund Abdelfatah
Do you know what the aggregate amount
Ramtin Arablouei
was of those deposit accounts at the end of the last fiscal year? $340 million.
Rund Abdelfatah
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.
Jason Scott Smith
But his earlier career and his earlier life, you might not necessarily have predicted that this would happen.
Ramtin Arablouei
FDR had grown up not all that differently from JP Morgan Jr. With a lot of money, rubbing shoulders with the elite. They even went to Harvard around the same time. And after college, JP Morgan Jr goes into finance like his dad. And Franklin Roosevelt goes into politics, thinking
Jason Scott Smith
this is the family business. My cousin Teddy Roosevelt, he was a Republican. I'll distinguish myself by being a Democrat.
Ramtin Arablouei
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
Jason Scott Smith
is struck with polio and is no longer able to walk.
Ramtin Arablouei
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.
Jason Scott Smith
This kind of illness striking someone who was so wealthy and seemingly led such a charmed life must have humanized him to many Americans.
Ramtin Arablouei
Roosevelt became governor of New York in 1929, just before the stock market crash.
Rund Abdelfatah
And during the first few years of the Great Depression, he watched as the Republican administration of President Hoover made a bad situation worse.
Ramtin Arablouei
Raising taxes on businesses, which meant they had less money to invest, and individuals,
Rund Abdelfatah
which led to more unemployment and fewer customers at stores.
Ramtin Arablouei
Raising tariffs to protect American jobs, which backfired and triggered a global trade war and.
Rund Abdelfatah
And refusing to give direct aid to people, leading to a crisis of hunger and homelessness.
Narrator/Voice Actor
Good evening, my fellow Americans and friends of the radio audience. I hope during this campaign to use the radio frequently.
Ramtin Arablouei
So Roosevelt decided to throw his hat into the ring for the presidency.
Narrator/Voice Actor
In this time of unprecedented economic and social distress. The Democratic Party declares its conviction that the chief causes of this condition.
Lawrence Reed
Roosevelt said the problem was too much government and he was going to cut it back.
Narrator/Voice Actor
First, an immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagance to accomplish a saving of not less than 25%.
Lawrence Reed
And his running mate accused Hoover of leading the country down the path to socialism.
Ramtin Arablouei
This is Lawrence Reed, President Emeritus of the foundation for Economic Education.
Lawrence Reed
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
Narrator/Voice Actor
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.
Rund Abdelfatah
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.
Jason Scott Smith
The inefficiency was the point. He wanted to provide jobs. He 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.
Rund Abdelfatah
And for the capitalists, who represents the capitalist?
Jason Scott Smith
JPMorgan 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.
Rund Abdelfatah
Which brings us back to J.P. morgan Jr. Sitting in the Senate Banking Committee hearing.
Ramtin Arablouei
In that bookkeeping process, do you count deposits as liabilities? Do I. I do not think that question is very necessary, Senator.
Joe Thorndike
The critics of this are saying, you know, this is just blatant politics. This is, you're just searching for scapegoats.
Rund Abdelfatah
And then it was discovered in the
Joe Thorndike
hearing, J.P. morgan and his partners hadn't paid any taxes for a couple of years in the early 1930s.
Rund Abdelfatah
People were outraged.
Joe Thorndike
They were like, oh, my goodness, I cannot believe, 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?
Rund Abdelfatah
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.
Joe Thorndike
Who do you blame in that moment? Do you blame the taxpayer? J.P. morgan? 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 written the law like this in the first place? You know, you can go either way on that.
Ramtin Arablouei
The committee interviewed a series of other bankers, and by the end, it was
Jason Scott Smith
clear unchecked stock market speculation was one of the factors that had sent the economy and the American banking system into collapse.
Ramtin Arablouei
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.
Rund Abdelfatah
But the tax question remained.
Joe Thorndike
What is the moral status of tax avoidance? It may be legal, but is it moral?
Rund Abdelfatah
FDR took this up as his personal fight.
Joe Thorndike
To him, the aggressive tax Avoidance, even when legal, is just as worthy of scorn and political attack.
Paul Camacho
Because you think about it, that's the New Deal. The government is relying on the tax
Ramtin Arablouei
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.
Rund Abdelfatah
But for Roosevelt, the income tax was symbolic, a way to rebuild trust with the public and restore that feeling people had when Elmer Iry took down Capone, that everyone was expected to pay their fair share.
Joe Thorndike
And he wants to name names.
Rund Abdelfatah
One of the names Roosevelt tells the IRS to investigate is Elmer Iry's former boss, Andrew Mellon.
Lawrence Reed
Andrew Mellon was a very prominent and very wealthy man. Everybody knew who he was.
Joe Thorndike
There is an old joke about Andrew Mellon, that three presidents served under Andrew Mellon.
Lawrence Reed
He'd been Treasury Secretary for more than
Rund Abdelfatah
11 years, basically from the time Prohibition began.
Joe Thorndike
And what did he believe in? He believed in cutting taxes more than anything else.
Elmer Irey
The Roosevelt administration made me go after Andy mellon. I liked Mr. Mellon, and they knew it.
Rund Abdelfatah
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 2/3% on that job, investigate Mellon. I order it.
Joe Thorndike
Everyone was convinced, I think, of Mellon's innocence, except perhaps for Franklin Roosevelt and Henry Morgenthau. It was politics driving this.
Paul Camacho
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 it known that the case is not there.
Rund Abdelfatah
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. You know what havoc that could have wreaked on the government.
Paul Camacho
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. And that was what it meant to be a civil servant.
Joe Thorndike
In 1935, Roosevelt's starting to gear up for his first reelection campaign.
Ramtin Arablouei
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 have had to pay 79% and there was no war to fund this time. Now, full disclosure, that 79% only applied to one person.
Joe Thorndike
It was John D. Rockefeller Jr.
Ramtin Arablouei
Even J.P. morgan Jr. Who had a lot of money, didn't have that kind of money.
Joe Thorndike
So is that a meaningful tax? Well, it's not meaningful in the amount of revenue it's going to raise, but it might be meaningful in terms of the message that it sends.
Jason Scott Smith
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.
Ramtin Arablouei
Even though this tax crusade against the wealthy was resonating with people, FDR was feeling uncertain about his reelection and he began asking Elmer to investigate more and more people who could be fairly described as 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 Mo Annenberg, owner of a media company that was vocally critical of FDR and the New Deal.
Rund Abdelfatah
Paul Camacho says it's unclear how much these investigations were politically motivated because some of them were suspected of actual criminal wrongdoing. A. Lawrence Reid cites this as counter evidence.
Lawrence Reed
Elliot Roosevelt, the son of the President, wrote a very revealing book about the family's years in the White House. And 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.
Narrator/Voice Actor
We know now that government by organized money is just as dangerous as government by organized mob.
Rund Abdelfatah
Roosevelt won re election in 1936 and he would go on to win re election an unprecedented two more times.
Narrator/Voice Actor
They are unanimous in their hate for me and I welcome their hatred. Nowadays we are assailed by a chorus of hurried threats.
Ramtin Arablouei
By the late 1930s, talk of war began to fill the airways and fascism was taking hold of Europe. Some Americans, angry at Roosevelt, began to call him the New Deal dictator.
Lawrence Reed
He proposed a 99% top income tax
Ramtin Arablouei
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.
Lawrence Reed
They're saying we're not going to take all the risk and have almost all the reward taken by the government.
Rund Abdelfatah
And whether you saw it as a good or a bad thing, this is
Jason Scott Smith
a radical transformation of the federal government.
Rund Abdelfatah
Exactly how much New Deal programs actually fix 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 trusty Uncle Elmer was making sure everyone paid their fair share, gangsters, banksters and politicians alike.
Ramtin Arablouei
Coming up, that trust is put to the ultimate test.
Rund Abdelfatah
Hello, my name is Tamara. I'm in New Orleans, and you're listening to throughline on NPR.
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Ramtin Arablouei
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Narrator/Voice Actor
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.
Ramtin Arablouei
On March 9, 1942, just a few months after the US entered World War II, Elmer Iry received a letter from Franklin Roosevelt himself.
Paul Camacho
We were not really winning the war, and FDR was not just sending letters randomly out to people.
Ramtin Arablouei
This is Paul Camacho. He's a retired special agent for the IRS Criminal Investigation Division.
Paul Camacho
And so he's writing this letter, dear Mr. Iry, and telling Elmer, you know, I'm looking back at your career when you first started.
Ramtin Arablouei
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 a 1 efficiency.
Paul Camacho
And I just want to thank you because going into this tax season on
Ramtin Arablouei
this coming March 15th, we will be unpopular with more millions of taxpayers than ever before.
Paul Camacho
I mean, they're in a perfect position for an agency to hate.
Rund Abdelfatah
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 I rehearsed had built up with the public would help this new tax land with them.
Ramtin Arablouei
Victory Tax plan adopted. All individuals earning more than $12 a week affected the Baltimore Sun.
Joe Thorndike
Suddenly, millions and millions of Americans who've never had to pay income taxes are suddenly paying them for the first time.
Rund Abdelfatah
This is Joe Thorndike, historian for Tax Analysts, a nonprofit provider of tax information.
Joe Thorndike
And that's how the federal government manages to take what they called a class tax and turn it into a mass tax.
Rund Abdelfatah
A mass tax, because now it wasn't just the rich being taxed, it was also everyday middle class Americans that had to contribute.
Ramtin Arablouei
In 1939, only about 5% of American workers were paying income tax. By the time Victory Tax came along, it had risen to 75%.
Rund Abdelfatah
Are Americans angry about this?
Joe Thorndike
You know, war has a way of holding that kind of taxpayer anger in 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.
Ramtin Arablouei
And the government builds a whole PR campaign around this new tax, partly to make sure people comply and partly because
Joe Thorndike
people who had never done it, they didn't know how to do that.
Narrator/Voice Actor
I paid my income tax today. I'm only one of millions more whose income never was taxed before. Hard tax I'm very glad to pay.
Jason Scott Smith
The federal government commissioned people like Irving Berlin to write songs.
Ramtin Arablouei
This is Jason Scott Smith. He's a historian at the University of New Mexico who's written two books about FTR and the New Deal that were
Jason Scott Smith
all about how, hey, I've paid my income tax today. Isn't this great?
Narrator/Voice Actor
See those bombers in the sky? Rockefeller helped to build them, so did I. I paid my income tax today.
Paul Camacho
And there was this famous campaign that they rolled out using Donald Duck.
Narrator/Voice Actor
Are you a patriotic American?
Rund Abdelfatah
Yes, sir.
Narrator/Voice Actor
Eager to do your part?
Announcer
Yes, sir.
Narrator/Voice Actor
Then there's something important. You can do it.
Rund Abdelfatah
I'll do it.
Narrator/Voice Actor
Your income tax.
Rund Abdelfatah
Income tax.
Narrator/Voice Actor
Yes, your income tax.
Rund Abdelfatah
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.
Joe Thorndike
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.
Lawrence Reed
There are many people in Washington who knew that it might become increasingly difficult to collect the money.
Rund Abdelfatah
The IRS wasn't staffed up enough to keep track of that many new taxpayers.
Joe Thorndike
And so policymakers recognized early on that they're going to have to find some better way for these people to come pay. And so in 1943, they thought, hey,
Lawrence Reed
let's put withholding in place, because then we'll get it before the taxpayer ever earns it.
Rund Abdelfatah
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.
Joe Thorndike
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 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.
Rund Abdelfatah
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.
Joe Thorndike
The federal government 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.
Ramtin Arablouei
It was a drastic step in terms of government invasiveness.
Lawrence Reed
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.
Ramtin Arablouei
But there were some people who were speaking out against these new tax laws even as the war raged on.
Rund Abdelfatah
People like Vivian Kellams.
Lawrence Reed
Vivian Kellams is one of my favorite people.
Rund Abdelfatah
In the late 1920s, Vivian and her brother started a company together based around
Lawrence Reed
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.
Rund Abdelfatah
And so she made a lot of money, money that was taxable.
Lawrence Reed
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, haven't taken anything from anybody. I've employed people, 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.
Rund Abdelfatah
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 afraid, 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.
Lawrence Reed
I mean, this was quite remarkable for a woman to say, no, 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.
Rund Abdelfatah
Vivian traveled around the country giving speeches
Lawrence Reed
and often had sizable crowds in which she argued against compulsory withholding and against big government in general.
Jason Scott Smith
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 some, something that you can afford?
Narrator/Voice Actor
From this day, we move forward. We move toward a new era of security at home.
Ramtin Arablouei
After the war ends, Elmer Airy retires from public service. Life magazine calls him one of the world's greatest detectives. And there was even a Hollywood movie called the T Man, which stood for the treasury man. That was partly inspired by Elmer Airy and his treasury agents.
Rund Abdelfatah
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 of all that tax money got fed into something else.
Joe Thorndike
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.
Jason Scott Smith
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.
Rund Abdelfatah
And the debates surrounding these new taxes and this new expanded role of the federal government got louder. People like Vivian Kellums 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. And I wrote to the Secretary of the treasury, and I told him that
Ramtin Arablouei
I had not sent any money and
Rund Abdelfatah
that I was not going to until he paid me what he owed me. And these voices coalesced into a new
Jason Scott Smith
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. And then the kind of business reaction to the power of the New Deal, the remaking of labor relations, and the growth of organized labor.
Ramtin Arablouei
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.
Jason Scott Smith
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?
Ramtin Arablouei
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.
Rund Abdelfatah
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?
Jason Scott Smith
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.
Rund Abdelfatah
But this imperfect system is what helps keep the lights on, the roads operating, the water running.
Lawrence Reed
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.
Rund Abdelfatah
That's it for this week's show. I'm Rund Abdelfattah.
Ramtin Arablouei
I'm Ramtin Arablouei and you've been listening to Throughline from npr.
Rund Abdelfatah
This episode was produced by me and
Ramtin Arablouei
me and Lawrence Wu, Julie Kane, Anya
Rund Abdelfatah
Steinberg, Casey Miner, Christina Kim, Devin Kadayama, Sarah Wyman, Irene Noguchi Voiceover Work in
Ramtin Arablouei
this episode was done by Jason D. Divina, Gracia Fulton Ho, Christian Benford, Shaheer Khan and Ivan Wu.
Rund Abdelfatah
Thank you to Johannes Jerge, Edith Chapin, Nadia Lancy and Colin Campbell.
Ramtin Arablouei
Fact checking for this episode was done by Kevin Voelkel. The episode was mixed by Jimmy Keeley.
Rund Abdelfatah
Music for this episode was composed by Ramtin and his band Drop Electric, which includes Naveed Marvi, Sho Fu, Anya Mizani.
Ramtin Arablouei
And finally, if you have an idea or like something you heard on this show, please write us@throughlinepr.org and make sure to follow us on Apple, Spotify or the NPR app. That way you'll never miss an episode.
Rund Abdelfatah
Thanks for listening.
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Podcast Summary: Throughline – “Al Capone and the Transformation of the IRS” (Aired April 2, 2026)
Hosts: Rund Abdelfatah & Ramtin Arablouei (NPR)
This episode of Throughline explores how the pursuit and conviction of notorious Chicago gangster Al Capone fundamentally transformed the IRS from a mundane tax-collecting agency into a powerful law enforcement force at the heart of American power. The story traces the IRS’s role in bringing Capone to justice, the agency’s surprising hero Elmer Irey, and the resulting shifts in government, taxation, and public trust. It further unravels how these changes shaped the federal government’s expansion through the New Deal, World War II, and into the present era.
Timestamps: 00:43–02:43
Timestamps: 05:27–07:11
Timestamps: 09:06–18:16
Timestamps: 18:16–22:14
Timestamps: 22:14–33:04
Timestamps: 33:04–39:13
Timestamps: 40:52–47:18
Timestamps: 49:37–53:14
This episode tracks the fascinating and unexpected journey of the IRS from obscurity to power, fueled by the battle against gangsterism and economic crisis—illuminating how these events shaped America's modern government, its fraught relationship with taxes, and enduring political debates about money, fairness, and trust. The narrative is colorful, engaging, and rich in character, offering both a historical education and timeless food for thought.