Startup companies tend to operate in a bubble outside of the policies in Washington D.C. But the recent battle in Congress over the so-called fiscal cliff is having real impact, largely through the expiration of the payroll tax holiday.
By allowing the payroll tax relief plan to expire, Congress ensured that all wage-earners will see taxes go up by two percent, from 4.2 percent to 6.2 percent. That means someone making $50,000 will earn about $1,000 less this year — real money that could impact the ability of Americans to buy goods, save for college or invest in the stock market.
Dan Price, the CEO of Seattle-based Gravity Payments, a nine-year-old payment processing company, didn’t like the sound of that.
“We don’t think it is the right time to be raising taxes in a regressive way on workers,” Price tells GeekWire.
So, even while the tax relief is expiring, the company has decided to immediately institute a two percent pay raise for all workers making under $100,000. That applies to the majority of the company’s nearly 100 employees.
This is the first we’ve heard of such a plan by a Seattle company to offset the tax hikes on workers (let us know of others), but Price says he’s hoping that it becomes a trend.
“The payroll tax is regressive and is the tax that most hits everyday people,” said Price, adding that he decided to “put my money where my mouth is.”
According to the Tax Policy Center, of those Americans who make between $20,000 and $30,000 a year, 66.9 percent pay more in payroll tax than income tax. In other words, it tends to hit poor Americans harder.
The New Yorker offers a critical analysis of why President Obama conceded ground on the payroll tax in the latest fight with Congress, noting that it amounts to a middle-class tax hike that could send the country back into recession. Write Amy Davidson:
“Perhaps Democrats need to do with payroll taxes what Republicans did when they started calling the estate tax the “death tax”: find a new way of talking about it that makes the stakes vivid. What is depressing, though, is that when the party did fight for the payroll tax cut, last year, they won, largely because of public opinion. They managed to make the hypocrisy of Republicans who fought for the wealthy but let taxes rise on the poor clear. They can do it again.”