Windfall gain

Windfall gain

A windfall gain (or windfall profit) is any type of income that is unexpected. [cite web| url=http://www.revision-notes.co.uk/revision/404.html| title=Wealth Effect| date=January 1 2003| accessdate=2007-03-09| publisher=RevisionNotes]

The etymology of the phrase is from colonial times. "The crown precluded the colonists from using any lumber one foot or wider except whereby act of God, such as a severe storm, a tree falling on one's own property. If that happened, the colonists could use the tree that fell down on their property during a storm or they could sell it for a significant amount. So if you had a big storm on your property back in colonial days, and a lot of trees fell down, the resulting monetary reward was called 'a windfall profit.' It was a beneficial thing to a property owner, because they had limits on how much lumber they could use. But if an act of God came down and knocked a bunch of trees, they could use whatever they had. There were no limits on it and they could sell it or use it for their own construction purposes, hence windfall profit." [http://www.rushlimbaugh.com/home/menu/nyt.guest.html]

Types of Windfall Gains

The list of windfall gains includes, but is not limited to:
*Lottery winnings
*Unexpected inheritance
*Gains from demutualization

Uses of Windfall Gains

What people do with windfall gains is subject to much debate. While they differ from one account to the next, most economists hypothesize that the majority of the gains are saved, due to the Permanent Income Hypothesis. [cite web| url=http://www.economist.com/research/Economics/alphabetic.cfm?term=windfallgains#windfallgains| title=Windfall Gains| date=January 1 2007| accessdate=2007-03-09| publisher=The Economist]

Windfall Profits

Windfall profits are a type of windfall gain. They can occur due to unforeseen circumstances in a product's market, such as unexpected demand or government regulation. Since the profits were unforeseen, some legislators believe that taxing them at a higher rate, or confiscating them outright, should not hurt the company. This type of taxation is known as a windfall profits tax. [cite web| url=http://www.economist.com/research/Economics/alphabetic.cfm?term=windfallprofit#windfallgains| title=Windfall Profit| date=January 1 2007| accessdate=2007-03-09| publisher=The Economist]

Taxes

Barack Obama has proposed a windfall profits tax on oil company profits in his New Energy for America plan [http://www.barackobama.com/pdf/factsheet_energy_speech_080308.pdf] [http://democrats.senate.gov/dpc/dpc-new.cfm?doc_name=lb-110-2-78] .

References


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