Daniel Okrent has written a lively new history of Prohibition, Last Call. It's a colorful narrative that conveys what life was life under the federal ban on alcohol. It also bears on at least two themes we write about regularly here – taxes and the influence of religion on views of capitalism.
Mr. Okrent's tale of how Prohibition and its repeal were intertwined with tax policy is fascinating and will be unfamiliar even to many of those who think they know a lot about taxes already.
"By 1910 the federal government was drawing more than $200 million a year from the bottle and the keg – 71 percent of all internal revenue, and more than 30 percent of federal revenue overall," he writes. "Given that you couldn't collect much revenue from a liquor tax in a nation where there was no liquor, this might have seemed an insurmountable problem for the Prohibition movement. Unless, that is, you could weld the drive for Prohibition to the campaign for another reform, the creation of a tax on incomes."
"In 1895 the Supreme Court declared the income tax unconstitutional…When the income tax was finally legalized, it was the industrialized East that yielded before it: 44 percent of the revenue collected came from New York State alone. It was not a coincidence that eight of the first nine legislatures to have ratified the amendment (starting with Alabama, where the vote was unanimous in both houses) were in southern or border states," he writes, calling the constitutional amendment creating the income tax a way for "many of the racially motivated prohibitionists of the South" to "avenge Reconstruction by striking back at the economic and political imperialists of the North."
If the imposition of the income tax went hand in hand with Prohibition, so the effort to repeal Prohibition went along with opposition to the income tax. Mr. Okrent writes that the Association Against the Prohibition Amendment included some of the richest men in the country, people like Kermit Roosevelt, Marshall Field, and Vincent Astor. In 1926 it won the attention of Pierre S. du Pont.
The Revenue Act of 1916, Mr. Okrent writes, had taken "three swings at the du Pont family's wealth: doubling the income tax rates on those in the highest brackets, creating the nation's first peacetime inheritance tax, and assessing a 12.5 percent levy on the profits of munitions manufacturers."
Du Pont wrote a friend that with repeal of Prohibition, "the revenue of the government would be increased sufficiently to warrant the abolition of the income tax and corporation tax."
In 1923 Clarence Barron, publisher of the Wall Street Journal, had made a similar argument, writing that repealing Prohibition would enable the government to "abolish the income tax."
The Great Depression reduced federal revenue from the income and capital gains taxes to the point where alcohol tax revenue was again desired. But it turned out to be in addition to the other taxes, rather than instead of it. Du Pont, in victory, realized his error. The Prohibition repeal effort he had been so involved with, he said, should have been directed instead at the 16th Amendment, the one establishing the income tax, which "could have been repealed with the expenditure of less time and trouble than was required for the abolition of its little brother."
The second area in which Mr. Okrent's book is strong is religion – particularly, the Jewish involvement in illegal liquor distribution and sales. He mentions that Ivan Boesky's father Sam, a Detroit delicatessen owner, was arrested on suspicion of selling contraband liquor.
But his focus is the Bronfman family of Canada, where liquor was legal. He says that part of the explanation for the prevalence of Jews in the alcoholic beverage business is that other fields were closed to them. "There had never been a Jewish CPA in all of Canada; there were no Jews in the nation's insurance industry; strict quotas kept doors barely ajar in he medical schools; and throughout the western provinces, the number of Jews working in the banking business was precisely one," he writes.
One of the rum-running ships that plied the waters off Canada was named the Mazel Tov. Another set of smuggling boats, on the Detroit River, was known as "the Little Jewish Navy."
There are other aspects of Mr. Okrent's tale that will be relevant to today's readers.
Think there's a revolving door now between Congress and the corporate lobbyists' headquarters on K Street? Mr. Okrent reports that Mabel Willebrandt, the assistant attorney general in charge of Prohibition enforcement from 1921 to 1929, left and became a paid lawyer-lobbyist for Fruit Industries, which, with her help, received a $20 million loan from the Federal Farm Board to help launch its home winemaking business. James Doran, a former director of the Prohibition Bureau, became the head of the liquor manufacturer's trade association, Mr. Okrent says.
Those who see the recent health care overhaul as a "taking" of health insurers' property under the Constitution may be interested to know that the issue arose in respect of the nearly $ 1 billion in capital that had been invested in liquor and beer industries before Prohibition. "The New Republic said that any dry who argued against compensation was 'exactly as mindful of property interests…as the Russian Bolsheviki,'" Mr. Okrent writes, while Herbert Hoover called Congress's refusal to consider compensation "an insult to private property."
Another reed of hope for opponents of ObamaCare: When the Senate voted in February 1933 to repeal Prohibition, "of the twenty-two members who had voted for the Eighteenth Amendment sixteen years earlier and were still senators, seventeen voted to undo their earlier work."