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University of Chicago Law Review

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545

Abstract

The extensive literature on legal transitions has formed a general position in favor of establishing a governmental transition policy; the primary debate concerns whether the policy should be one of systematically mitigating or not mitigating transition losses. Arguments on both sides generally have assumed a sharp dichotomy between a substantive legal change and the transition treatment associated with the substantive change. Focusing on federal tax legislation, this Article challenges that assumption and the normative conclusions that it supports. Specifically, this Article identifies compromise as an important component of the tax legislative process and argues that the ability to provide or not to provide transition relief on an ad hoc basis facilitates such compromise. A policy either to mitigate or not to mitigate tax transition losses would remove this mechanism and, consequently, would cause legislators to pursue compromise through other means, such as by scaling back the substantive policy changes they otherwise would enact. This effectively tilts substantive tax policy toward the status quo. The analysis yields three main conclusions. First, tax transition policy is not exogenous to substantive tax policy. Second, the likely effects of tax transition policy on the development of substantive tax policy raise doubts about the normative arguments that have been made for tax transition policy. Finally, contrary to the general consensus of the literature, the ad hoc approach to tax transitions in current practice yields results that may be no less desirable than the results of following a formal tax transition policy.

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