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It is a truism that changes in government policy can produce losers and winners. And nowhere is that truism more clearly revealed, or more closely studied, than in the context of tax rule changes. Consider the individual who makes an investment in real estate or business equipment or some sort of financial instrument (such as stocks or bonds) or even in human capital, and who does so in reliance on a special tax deduction or credit which applies to that investment. If the relied-upon tax preference is unexpectedly repealed, the investor may suffer what is sometimes called a "transition loss," a decline in the value of the pretransition investment. The story can just as easily go the other way: if an individual makes an investment before the enactment of the special deduction or credit (and oblivious to the possibility of its enactment), she may enjoy a windfall "transition gain" when the new rule is unexpectedly adopted. And both effects-transition losses and gains-can result from any number of tax rule changes (including changes in the tax base as well as in tax rates) as well as from non-tax-law policy changes of every variety, ranging from developments in common law tort doctrine to changes in environmental laws or regulations to changes in government spending programs. That unexpected rule changes produce losers and winners is uncontroversial. Disagreement arises over the question of what, if anything, should be done about these transition effects. To put the question slightly differently, what should our "transition policy" be? Or put differently still, to what extent should the government deliberately try to alleviate the "retroactive"' effects of rule changes?

If Taxpayers Can't Be Fooled, Maybe Congress Can: A Public Choice Perspective on the Tax Transition Debate