The Collapse of Capitalism in the US (I)
Written by Alfonso Elizondo
According to Picketty, the astute French economist, between 1930 and 1970 the United States greatly reduced social inequalities, perhaps so as to not imitate Europe which, at that time, was perceived as the antithesis of the democratic spirit. In the period between the two World Wars the US created a very high progressive tax on income and inheritance, establishing levels of tax progressivity that had never before been used in America.
In the half century between 1930 and 1980, the highest tax on US income (of more than one million dollars per year) averaged 82%, peaking at 91% between 1940 and 1960 – from Roosevelt to Kennedy. With Reagan it dropped to 70% in 1980.
That policy did not affect the great post-war growth in the United States, perhaps because it did not help to pay the ‘super bosses” who earned 10 million dollars a year instead of 1 million. There were state taxes with rates ranging from 70 – 80% for several decades, while in Germany and France, the rate did not exceed 30 – 40%. So there was a concentration of American inherited wealth, without the wars and without the destruction in Europe.
In addition, the US established a federal minimum wage in the early 1930s, long before European countries, and the level exceeded $10 per hour at the end of the 1960s, which was by far the highest in those days. It was the time when the US put an end to legal racial discrimination that still existed in the South of the country. All this led to strong resistance, especially among the high financial elites and in the reactionary fringes of the white electorate.
In the 1970s, the United States was very concerned about the humiliation suffered in Vietnam and the fact that the countries defeated in the war, with Germany and Japan in the lead, would catch up with them in their rate of economic growth. They also experienced the oil crisis, inflation and the problems of tax rates, so Reagan navigated all these frustrations and in 1980 he was elected to carry out a program that sought to return to the origins of mythical capitalism, the highlight of which was the fiscal reform of 1986 that stopped the tax increase and reduced the tax on the highest incomes to 28%.
The Reagan program was never challenged by the Democrats. Neither Clinton nor Obama stabilized the tax rate at 40% – double the average between 1930 and 1980 – which created major inequalities and huge salaries, although slightly higher than in Europe, while incomes stagnated for the middle-class majority.
Addendum: I will continue with the history in the following article.