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Windfall gain

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Title: Windfall gain  
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Subject: Windfall, Loss aversion, Permanent income hypothesis, Strict foreclosure, Term loan
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Windfall gain

A windfall gain (or windfall profit) is any type of income that is unexpected.[1]

Contents

  • Types of windfall gains 1
  • Uses of windfall gains 2
  • Windfall profits 3
  • Taxes 4
  • References 5

Types of windfall gains

The list of windfall gains includes, but is not limited to:

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.[2]

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.[3]

Regardless of taxation, some businesses view windfall gains as a liability, as it creates difficulties when it comes to managing cash flow and investor expectations. It may also indicate a problem with the company's strategy and the ability of executives to forecast the market. That said, windfalls also present a substantial opportunity for reinvestment and helps buffer the company's bottom line.

Taxes

Barack Obama has proposed a windfall profits tax on oil company profits in his New Energy for America plan. However, Obama shelved this plan in December 2008 when oil prices dropped below $50 a barrel.[4][5]

References

  1. ^ "Wealth Effect". RevisionNotes. January 1, 2003. Archived from the original on 2007-02-19. Retrieved 2007-03-09. 
  2. ^ "Windfall Gains". The Economist. January 1, 2007. Retrieved 2007-03-09. 
  3. ^ "Windfall Profit". The Economist. January 1, 2007. Retrieved 2007-03-09. 
  4. ^ "??" (PDF). Barackobama.com. Retrieved 2012-11-21. 
  5. ^ [2]


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