Professional fighters are accustomed to pain, not just from the blows of an opponent or the deceptions of poor management and shoddy promoters, but the tax man who often deals out the most punishment. Boxing legend and American hero Joe Louis, who helped symbolize the era of the Greatest Generation, met his most fearsome opponent in the U.S. Bureau of Internal Revenue (precusor to today’s IRS). Despite symbolically winning 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 U.S. government.
As the United States entered World War II, Joe Louis donated the winnings from his 1942 bouts to the Navy Relief Fund and the Army Emergency Relief Organization, while also enlisted to perform in exhibition bouts to act as a weapon of propaganda. The legend goes that Joe Louis owed money for his wartime charity fights, and was hounded by tax collectors well into his retirement.
Louis’ debt to the Bureau went back to this 1937 fight against James Braddock, when he started to “owe” more to the steep nature of the graduated income tax at the time. When Louis started boxing in 1931, the top marginal tax rate was 24 percent. By 1937 it had climbed to 79 percent. So while it appeared 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 U.S. 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 actual outcome was that Uncle Sam still wanted his money, promoters and management still 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, when the U.S. tax rate was hiked to 90 percent, the government was not interested in money that Louis had donated to charities or outlays, let alone tickets he had purchased for soldiers so they could watch him fight. The tax burden was growing with interest. Joe Louis, heavyweight champion of the world with twenty-five consecutive title defenses, retired poor and in debt in 1949. A year later, he returned to the ring to challenge the new champion, Ezzard Charles. Louis needed the money to pay the government more than he needed or 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 amount would have been near enough to help clear his previous tax 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.”
Joe Louis would continue to struggle in retirement. Despite the many donations he had made to charity, the help he had offered others and the glory he had attained for himself, his nation, and the sport of boxing, he would die in 1981 as a poor man unable to enjoy the fruits of his world class talents.
That, 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 realize 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 and state taxes, then national or federal taxes of the host nation, only to return home to pay an additional set of domestic taxes. These taxes are all being estimated on the gross income, not what remains after each government has stolen its share. The purse paid to an individual fighter can seem a lot higher than it actually becomes. That’s why a fighter like Rocky Marciano was famously insistent of being paid in cash (even if it was for less) than by check or anything involving a bank.
Joe Louis was not advised about the importance of tax shelters or how to hide his money or even how to utilize certain loopholes. Trust and naivety are dangerous for any individual when dealing with an entity that believes it owns you absolutely and has every right to your possessions. The lesson of Joe Louis is known among prize fighters; some invest well and pay what taxes they need to, while others fall into a similar trap by 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 profitable sporting events. 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 national greatness. The obvious publicity and tourism benefits for such a government are apparent.
When George Foreman defended his title against Ken Norton in March 1974, the Venezuelan government had made a “no tax” promise 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 a Venezuelan government still determined to collect taxes from the two fighters. The men were held at gunpoint and forced to “reach an agreement” with the authorities. The Venezuelan government demanded 18 percent of each fighter’s individual earnings. It was not just the fighters that were suddenly required to pay the taxes, but 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 company would have to pay their own national government what it decided it deserved as well.
Because of the post-fight extortion, 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. It’s not seen as a sudden change of an agreement. Through the magical powers of law and legalese government 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…ahem, I mean 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 equalizer, punishing any who seem to get ahead and thus need to be cut down. There are also 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 wherever your ideology stands, whether you are pragmatic or philosophical in your approach to the extortion. It requires force and the threat of violence. And prize fighters are not above this extortion. For every Floyd Mayweather who invests and understands wealth management, there will be those too trusting and naive or reckless who will end up poor despite making a lot of other people rich with their talents. As great as Joe Louis was, no opponent hit him as hard as the tax man.