The Last Gang In Town: Income Tax Vs Capone (The Dollar Vigilante)
Friday October 12th, 2012
"Some call it bootlegging. Some call it racketeering. I call it a business." – Al Capone
The State Versus Al Capone
When Al Capone rushed back to the court room from his hotel headquarters just in time to hear the jury's verdict, his bald head was sweating as he put on his loud, green suit jacket to accompany his green suit (one of the $135 ones, a New York Times journalist wrote at the time, worth about $2,000 in today’s terms). Judge Wilkerson walked gallantly to his seat and faced the jury.
"Gentlemen," he said, "have you reached a verdict?"
"Yes, sir," said the foreman in a hardly audible voice.
The verdict, written on a court form, was handed across the bench. The clerk cleared his voice quietly and read:
"We the jury find the defendant guilty on counts 1, 5, 9, 13, and 18 in the second indictment, and not guilty on counts 2, 3, 4, 6, 7, 8, 10, 11, 12, 14, 16, 17, 19, 20, 21, and 22."
The reading meant that Capone would be brought to Alcatraz not for murder, extortion, or bootlegging, but for not paying his income tax. Alas, Capone would be brought down by the eventual last gang in town, the US government, for failing to pay off the mafia enterprise known as the state.
By 1928, Capone’s businesses were grossing approximately USD $105,000,000 ($1,532,008,696) a year. Ending Capone’s reign was obviously not a mission of the US government, as ending prohibition and destroying the bootlegger's profit base would have done that. But, Capone in particular was unregulated, uncontrollable competition for the state-mafia, and so had to be destroyed.
Light Pleasures and Good Times at the Mercy of the State
Capone did not think of himself as a criminal leader, but as “a public benefactor”. “I’ve given people light pleasures,” he said, “shown them a good time.”
In 1930, Capone’s tax attorney, Lawrence Mattingly, contacted the Treasury and expressed the desire to have his client meet with agents so as to settle his indebtedness with the government. (If only Capone had the option of Bitcoin back then!)
But the federal government, namely the Internal Revenue Department, was hungry to bring down a high-profile “gangster”, and Capone offered the feds the perfect opportunity to demonstrate that nobody gets away with failing to file an income tax.
After the verdict was read, the fifty or so persons in the court room, including Judge Wilkerson, looked puzzled. Al Capone, although he would serve eight years in prison and die a couple years later, seemed to think the verdict was a good one for him.
And so the trial for which the US government prepared three years and spent an estimated $100,000 ($1,500,000 in today’s terms) had come to a close with nothing more than the verdict for failure to file. In other words, in trying to bring Capone to justice for these petty offenses, the federal government essentially spent half of what Capone owed, leaving the US taxpayer $315,000 in the hole ($4,596,026 in today’s terms).
Thattaway, boys – if I could slap you on the rear end for your hard work, I would!
During the trial, the lead prosecutor swung around to Capone each time he laid a new accusation: "Who is this man? Who is he?" he asked.
"Is he the little boy in the second reader who found the pot of gold at the end of the rainbow? Is he a Robin Hood? You remember how Robin Hood in the days of the barons took from the strong and the rich go give to the poor, to the peasants? Did Robin Hood buy $8,000 worth of diamond belt buckles to give to the unemployed? Was it a Robin Hood who bought a meat bill of $6,500 in Florida? Did that meat go to the unemployed? No! It went to the Capone home on Palm Island to feed the guests at nightly poker parties."
The prosecutor railed against the defendant’s diamond belt buckles, automobiles, the lavish furnishings of the Capone home, and his own affluent personal attire. He addressed the income tax:
"Every morning thousands go down these streets to their daily work, and every one of them must pay an income tax on every dollar they earn above $1,500. But this man, with all the money he spends for diamond belt buckles, cannot pay the tax to the government. If the time ever comes when our people pay taxes only when the government must hound them and investigate them, then the government will fail, justice will disappear, our courts will be swept aside and organized society revert to the jungle."
The truth of the matter at that time, however, was that most US citizens had yet to begin paying the income tax. Although it had by then become the law of the land, it was not until the post-World War II 1950s when a popular base began to recognize and pay the federal income tax. But, even then, there were so many loopholes, tax shelters, and deductions, that nobody paid their actual tax rate.
The prosecution continued against Capone:
"I agree with defense counsel that future generations will remember this case, not because it was the case of Al Capone; they will remember it because it will establish whether any man can put himself above the law, whether he can so conduct his affairs that he can put himself beyond the reach of the law.”
The trial of Al Capone was portrayed as the trial of a superfluous and greedy man by the media. His climb to becoming the undisputed chief of illegal revenue in Chicago and its suburbs kept him in the headlines and the contrived target of populist rage. It could be argued that the trial helped to pave the way for the welfare-state of the New Deal – you know, the state-mafia’s version of Robin Hood.
State Sanctioned Gangsterdom
Al Capone was a creature of the state. Without the black market created by the US government through Prohibition, the enterprise would not have had the immense “risk premium” that black markets create and which engender violence. His business merely met a demand in the country, just like all of the black market products and services available on the black market today.
Today, with the state-mafia bigger than ever, it makes sense that the black market is bigger than ever.
The state creates all the “gangs” we persecute in programs like the War on Drugs. But the efforts are circular. We pay to create the crime and we pay to persecute. It is kind of like road construction: one year they widen the road, the next year they shrink the same road, and the following year they change the median and rip up the rest of the road to replace old pipes because they didn’t think of that in any year before.
But, since the state is the last gang in town, what it says goes. And, if you don’t pay off the last gang in town, you might find yourself lit up by Tommy guns waiting for a shipment of whisky or tied to a chair and beat with a baseball bat. Actually, as the last gang in town, the state-mafia would rather just lock you up and make the taxpayer pay pennies on the dollar squeezing every last bit of labor out of you.
Justin O'Connell is a writer for The Dollar Vigilante.