The backwater pre-industrial, post-war torn nation that beat the US to space? No, I don't think that was why they couldn't compete.
As far as I recall, pay is a pretty poor motivator -- while low pay is a pretty strong "de-motivator". So if you give people interesting challenges and make sure they can meet their basic needs, people are likely to preform.
But, even if competing for exceptional wages was a great motivator, no-one is saying that you couldn't do that in such a system -- you might have to limit it to fewer "exceptional" people, and there might be a higher risk of being demoted -- but I can't see why it wouldn't be possible. I don't think it would be a good idea, however.
All that aside, a household income of 80.000 USD sounds pretty good for most of the US (never mind 120.000) ?