American Institute of Certified Planners (AICP) Practice Exam

What does a windfall tax target?

1. All types of property taxes

2. Financial benefits due to public actions

3. Gains from unauthorized development

4. Donations to local governments

The correct answer is: Financial benefits due to public actions

A windfall tax specifically targets the financial benefits that certain entities or individuals receive as a result of public actions, such as changes in laws, regulations, or significant public investments that lead to unexpected profit increases. This type of tax is often implemented when individuals or companies experience substantial gains not entirely based on their own actions, but rather due to favorable circumstances created by the government or market shifts that they did not directly influence. The purpose of a windfall tax is to recapture some of the excess profits and use them for public good, such as funding social programs or infrastructure development. This approach reflects an ethical consideration that extraordinary profits derived from societal factors should contribute back to that society. Other options suggest targets that do not align with the specific intent of a windfall tax. For instance, all types of property taxes encompass a broader category of taxation that includes regular assessments of property value rather than extraordinary gains. Gains from unauthorized development pertain to illegal activity, which may not be specifically addressed by a windfall tax. Donations to local governments also do not match the focus on unanticipated financial benefits arising from public actions. Thus, it is the targeting of financial benefits due to public actions that accurately describes the intent of a windfall tax.