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The middle class was an accident
How the pattern repeats
Across history, a small group of very talented, very lucky people tends to gather wealth and power, then use both to gather even more at the expense of the bottom 99.9 percent. The postwar American middle class broke that pattern, and it was an accident of history more than a plan.
The American exception
The country came together and decided it would not let that concentration happen. Marginal tax rates on the super wealthy ran 60, 70, and at one point 90 percent during the stretch of great economic boom, the Great Society, rising productivity, and young people feeling good about their country's potential. It became the most productive society in the world.
Power corrupts, and absolute power corrupts absolutely. The only Kevlar history has offered against power sequestered in a small number of hands is progressive taxation. Without it, the laws of the jungle return, with a small number of people controlling nearly everything, and fortunes like one worth $650 billion become possible.
How did top tax rates get so high?
The US raised its top federal income tax rate to 94 percent during World War II to pay for the war. It stayed above 90 percent through 1963. A marginal rate applies only to income above a high threshold, so very few households ever paid the top rate. The Revenue Act of 1964 cut the top rate to 70 percent.
How did the GI Bill widen the middle class?
The Servicemen's Readjustment Act of 1944 gave returning veterans tuition aid and government-backed home loans. Millions of veterans used it to attend college or buy houses with little money down. Homeownership in the US rose from about 44 percent in 1940 to about 62 percent by 1960, according to Census Bureau figures.
Why did unions matter so much after the war?
Union membership reached its peak in the mid-1950s, when roughly a third of American wage and salary workers belonged to one. Contracts negotiated in large industries like autos and steel set pay patterns that nonunion employers often matched. Economists such as Claudia Goldin and Robert Margo have called the narrow wage gaps of that era the Great Compression.
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