How Taxes Changed Boxing
It is April 15, Tax Day, and so a sports fan's fancy turns to thoughts of...boxing?
It's now on the periphery of sporting awareness or interest, but there was once a time—and a very long time it was—when there was no bigger event in sports than a heavyweight title fight. And no bigger pay day. That's where taxes come in.
For a very long time, boxing was the only really big-money sport for athletes. Not for nothing did Marlon Brando's Terry Malloy regret taking the dive that cost him "the title shot outdoors in the ballpark" in On the Waterfront. At a time when Babe Ruth was being razzed for his $80,000 salary (more than the President of the United States, it was pointed out, to which Babe supposedly replied in 1930, "Well, I had a better year than he [President Hoover] did"), heavyweight champion Jack Dempsey made about nine times as much—over $700,000, for his unsuccessful title defense against Gene Tunney in 1926. And Tunney made $990,000 when he defended the title (and survived the infamous "long count") against Dempsey the next year. Between the two of them, they earned more than the entire 1929 payroll of baseball's American League in their two championship fights.
Where big money was being minted (and in full and very public view), the tax man inevitably followed. With no sadder result than the ordeal of Joe Louis. The perennial champion of the 1930s and 1940s—a true American hero who demolished Nazi Germany's Max Schmeling in the great symbolic sporting clash between democracy and fascism with a first round knockout at Yankee Stadium in 1938—had no defense when the IRS came calling.
Louis was a ripe target, with over $4,000,000 in prize fight earnings, a tangled mess of sloppy record-keeping, bad advice from accountants and advisers, and a failure to pay the taxes due on his winnings. Most unfortunate of all, there was a big tax bill on the purses he had donated to military relief funds during World War II, but he apparently did not comply with the regulations governing such charitable deductions. (And he didn't get a credit for coining two of the more memorable aphorisms of that war. Asked whether the US would win because God was on our side, Louis said "We'll win because we're on God's side." And, speaking as a black American who was surely more than tired of hearing himself called "a credit to his race," he also said, "There are a lot of things wrong with this country, but nothing that Hitler can fix.")
Uncle Sam was relentless in pursuing Louis, who found himself in the inescapable plight he had once attributed to fleet-of-foot challenger Billy Conn: "He can run but he can't hide." An initial assessment of half a million dollars ballooned to over $1,250,000 by the mid 1950s as interest and penalties accumulated. As Louis continued to fight past his prime in an effort to generate cash to pay back taxes, he was earning current income on which new tax liabilities accrued, a self-defeating treadmill. Efforts in Congress to secure relief failed. The IRS filed successive tax liens and kept up the pursuit for decades. "KO'd by the IRS" read the title of a review of Louis's autobiography published in 1978, three years before his death.
At the same time the IRS was harrying Louis for back taxes, it was also effectively stepping into the prize ring itself and determining the way the sport was conducted. The 1950s was the era of the 90 percent top marginal tax rate, and by the end of that decade live gate receipts for top championship fights were supplemented by the proceeds from closed circuit telecasts to movie theaters. A second fight in one tax year would yield very little additional income, hardly worth the risk of losing the title. And so, the three fights between Floyd Patterson and Ingemar Johansson stretched over three years (1959-1961); the two between Patterson and Sonny Liston over two years (1962-1963), as was also true for the two bouts between Liston and Cassius Clay (Muhammad Ali) (1964-1965). Then, the Tax Reform Act of 1964 cut the top marginal tax rate to 70 percent effective in 1965. The result: two heavyweight title fights in 1965, and five in 1966. You can look it up.