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In no way am I trying to justify poor treatment of LGBT people in the USSR, but were there any contemporaneous capitalist states which treated LGBT people better than the USSR?
Not really, at least de facto. The USSR still criminalized homosexuality on paper while Western European countries were decriminalizing, but also they didn’t really enforce it. Problematically, it was used against pedophiles, building off the widespread, bullshit, and long-running stereotypes of grooming. That’s probably the best characterization, really: towards the end, the Soviets retained and promoted many problematic characterizations of LGBT people, but folks’ actual lives and treatment were relatively egalitarian. Capitalist states were decriminalizing and generally improving LGBT rights, but also retaining the systems that disproportionately make LGBT people unhoused, in poverty, in danger.
And also worth mentioning that if “Marxist Democrats” are gonna “enforce” a certain socialist states’ rule of law, it could as easily be thay of East Germany which was wayyyy ahead of the west on gay rights