Joe Louis vs the tax man and the Caracas Caper
Professional fighters are accustom to pain, not just from the blows of an opponent or the deceptions of poor management and shoddy promoters, but often it’s the tax man who deals out the most punishment. Boxing legend and American hero, Joe Louis who helped symbolise the era of the Greatest Generation, most fearsome opponent was the US Internal Revenue Service. Despite symbolically wining his rematch against German boxer Max Schmelling, the icon of Nazi Germany or his prior victory over Primo Carnera from Mussolini’s Italy, Louis would become bludgeoned by the US government.
As the United States entered the war, Joe Louis donated his winnings from his 1942 bouts to the Navy Relief Fund and the Army Emergency Relief Organisation, while also enlisting where he would fight in exhibition bouts and act as a weapon of propaganda. So goes the legend that Joe Louis then owed money on taxes for his wartime charity fights and was hounded by the IRS well into his retirement. Joe Louis “debt” to the IRS went back to his 1937 James Braddock fight when he started to “owe” more due to the steep nature of income tax at the time. When Louis started boxing in 1931 the top marginal tax rate was 24 percent, it had climbed to 79 percent by 1937. So while it seemed to the public that he and other fighters were getting paid a lot of money, much of it was going to taxes not to mention management, sparring partners and the other costs of professional fighting.
An agreement was reached between the US government and Louis’ management that should he donate his 1942 fight purses to the relief charities he could then enlist with no tax debt. Unfortunately his management was deceptive and the details of the dealings were shady, the outcome was that the US government still wanted its money, promoters and management got paid and Louis despite his talents would rely on his income as an Army private. Once the war was over Louis returned to boxing where the high tax rate meant that he could barely get ahead on what he owed.
During the 1940s the US tax rate had hiked to 90 percent, the government was not interested on money that Louis had donated to charities or outlays, let alone tickets that he had purchased for soldiers so they could watch him fight. The tax burden was also growing with interest. In 1949 Joe Louis, heavyweight champion of the world with 25 consecutive title defences retired poor and in debt. A year later, Louis returned to the ring to challenge the new champion, Ezzard Charles. Joe Louis needed the money to pay the government more than he desired the glory of the belt he once held. After losing the decision to Charles, Louis would go on to face future champion Rocky Marciano in a one sided battering.
For the Rocky Marciano fight, Louis was promised $300,000 dollars, that would have been near enough to help clear his previous IRS debt. Unfortunately he still had to pay the 90 percent rate on the purse, leaving very little to cover the previous debt. As Louis once stated, “I had to keep working to pay taxes but the more I worked, the less I had.” Louis would struggle in his retirement, despite the many donations he had made to charity, the help he had offered others and glory he had attained for himself, nation and boxing itself he would die in 1981 as a poor man unable to enjoy the fruits of his talents and efforts.
That is, as they say, is boxing. Many professional athletes and entertainers are well aware of the pit falls of earning seemingly high amounts of money only to realise that they “owe” not only one government but other governments a piece of that earning. Some fighters can fight overseas, be forced to pay local state taxes, then national or federal taxes of the host nation only to return home to pay an additional set of domestic taxes demanded by their home nation. These taxes all being on the gross income and not what remains after each government has stolen its share. The purse paid to an individual fighter can seem a lot higher before the taxes. It is why a fighter like Rocky Marciano was famously insistent of being paid in cash, even if it was for less, than by cheque or anything involving a bank.
Joe Louis was not advised about the importance of tax shelters or how to hide his money or even utilise certain loopholes. Trust and naivety are dangerous for the individual when dealing with an entity that believes absolutely it owns you and has every right to your possessions. The lesson of Louis is known among prize fighters, some invest well and pay what taxes they need to, while others fall into a similar trap trusting managers, accountants and the government itself until they are bled dry and become an unprofitable shot fighter. Naturally there are also those who squander it away and ignore the warnings of accountants and wisdom of others.
During the 1970s, with the advent of satellite technology it became easier for counties all over the world to host sporting events that would then be shown across the globe making it often profitable for those involved. It was also in the best interest of certain governments to invite high profile sporting stars, such as Muhammad Ali, to fight in their nation. Suddenly heavyweight title fights were contested in places like Indonesia, Jamaica or the Philippines. The dictator of Zaire, Mobutu Sese Seko used the 1974 ‘Rumble in the Jungle’ between George Foreman and Muhammad Ali as a tribute to his tyranny while showcasing his nation. The obvious publicity and tourism benefits for such a government is apparent.
When George Foreman defended his title against Ken Norton in March of 1974, the Venezuelan government had made a ‘no tax’ agreement as an incentive for the promotion to be held in the city of Caracas. Once the fight was over, both fighters found themselves detained and prevented from leaving by the Venezuelan government which now sought taxes from the two fighters. A clear example of the true nature of taxation, extortion. The men were held at gunpoint and forced to ‘reach an agreement’ with the authorities. The Venezuelan government demanded 18 percent of each fighters individual earnings from the fight. It was not just the fighters that were suddenly required to pay the taxes, all involved with the fight. Some did flee in time to avoid the extortion. After having to pay the non-residents income tax to the Venezuelan government, Foreman, Norton and co would have to pay their own national government what it decided it deserved as well.
Because of the extortion after the fight, the event became known as the ‘Caracas Caper’. It is an ugly and unjust affair when a foreign nation extorts money from individuals in such a manner, especially when it goes against a prior agreement. When it is a domestic government committing the extortion it is often viewed as valid, a sudden tax hike is legitimate. It’s not seen as a sudden change of an agreement, the Venezuelan government did what all government can and have done. Through the magical powers of law and legalese it can invent a reason to steal, confiscate and extort. It is not criminal or sinister so long as it’s a government. For those who experience such a violation, even prize fighters, they are helpless to resist such extortion…correction taxation.
When it comes to taxation you have many who are indifferent, accepting it as a force of nature that shall and will always exist. A person is obligated to pay tax, whether it is fair or not never enters the discourse. Then you will find those who view taxation as an equaliser, punishing any who seems to get ahead and thus need to be cut down. Also are the true believers who trust that the money will go to services of benevolent and noble causes, a greater good. Taxation is theft, however you make a case for it and where you ideology stands, whether you are pragmatic or philosophical in your approach to the extortion. It requires force and the threat of violence. Prize fighters are not above this extortion, for every Floyd Mayweather who invests and understands wealth management there will be those trusting, reckless and naive who will end up poor despite making a lot of people rich with their talents. As great as Joe Louis was, no opponent hit him as hard as the IRS.