Another means of eliminating deductions would be to put every deduction on a basis similar to the medical deduction -- i.e., to allow claims only for the excess of the payment in question over a stated percentage of income, and then only on presentation of evidence. This would eliminate calculation of each deduction except for the exceptional minority for whom that particular deduction was important for equalization purposes.

To make this system arithmetically manageable would call for giving up the cumbruous system of basing the percentage on "net income without benefit of this deduction" and having a single standard base. Presumably this base should be personal gross income - - another point in favor of a sharper separation of business from personal deduction and a more clearcut definition of gross income. At best the system would be complex for those who claimed deductions; but it could be designed so that the majority need not bother to claim them, at some sacrifice of equalization and incentive effects.


One of the most promising ways to simplify deductions is to permit taxpayers to deduct round amounts or round percentages in lieu of calculating precise sums deductible. The device proposed above for solving the "working wife" problem is an example of this procedure; so is the use of Form 1040A, which is calculated to be equivalent to using Form 1040 and deducing an arbitrary percentage of gross income.

Presumptive deductions may be widely extended if we can extend the use of Form 1040A. This may be done, in turn, in any of four ways:

A. Making use of Form 1040A mandatory (instead of optional) for
certain groups of taxpayers. This would smack of class
legislation, and would probably not be acceptable.

B. Extending (perhaps from $3000 to $5000) the range of incomes
within which Form 1040A may be used.

C. Increasing incentives to use From 1040A rather than From 1040
by increasing the presumptive deduction included, and/or by
allowing certain specific deductions to be made on the face
of the return.

D. Finding means to permit people with income from other sources
than the present "salaries, wages, annuities, interest and
dividends" to use Form 1040A.

Method A may be left out of account, for obvious reasons. It is necessary to add only that to make a uniform presumptive deduction apply to everybody would be the same as to disallow all deductions and lower rates. "When everyone is somebody, the no-one's anybody!"

Method B -- extending the income range of Form 1040A -- has been suggested as a simplification measure from several quarters. It is hard to see any fundamental objection to it. But it is probably that a large proportion of those in the income ranges from $3000 to $5000 would still find it worth while to use Form 1040 unless further incentives were offered by using Methods C and D.

Method C has two branches. To increase the presumptive deductions would of course increase the proportion of taxpayers who would find it worth while to stop figuring their deductions in detail on Form 1040. How high the percentage would have to go to increase the use of Form 1040A substantially -- particularly to bring in home- owners in large numbers -- can be answered only from quantitative studies which are still incomplete. To allow specific deductions on the face of the return would involve extending the use of the short from at the expense of making it more complex. Any deductions which can be reduced to lump sum that may be taken under stated conditions (such as the allowance for working wives suggested above) could be handled simply; but if calculations must underlie the deduction entries, the virtues of Form 1040A are lost. The use of this device must therefore be severely limited.

Method D is another simplification device that rests on clear- cut definition of gross income. If we had a measure of gross income from farming, business, professions, house rents, etc., which was comparable with gross income from salaries, etc., -- i.e., net of all business deductions, but gross of all personal deductions -- we could permit any taxpayer regardless of source of income to waive calculation of his personal deductions and use the short form. This implies, however, the provision of work papers (similar to Form 1040F used by farmers) for the major types of unincorporated business. These work papers would have to be given statutory sanction and lead to a final result matching the revised definition of gross personal income (which would be net business income). Such a device would not merely simplify the calculation of personal deductions and of tax liability, but would forestall the frequent error of counting the same deductions both on the business and the personal side -- which farmers often do -- and help avoid confusion of personal consumption with business expenses. On the other hand, difficulties would arise in cases (again common in agriculture) where housing is provided as a by-product of the business. The best solution would be to enter the gross rental value of the housing and its costs on the business work- sheet, thus carrying forward net rental value as an element of gross personal income.


Regardless of the extension of use of Form 1040A, if Form 1040 is still to be widely used it will be worth while to eliminate the confusing "net income-without-benefit-of-this-deduction" base for the medical and contributions deduction. As noted above, the reason for the existing system is the lack of a workable concept of gross personal income. Given a satisfactory redefinition of gross income (i.e., a satisfactory distinction between business and personal deductions), gross income can immediately be made the base for such percentages.

REFRAMING INSTRUCTIONS, ETC. Within the Form 1040 itself, there is much more room for making the ordinary taxpayer more at home. Consideration might well be given to turning the back pages and instructions into a booklet, with two facing pages devoted to a worksheet AND instructions for handling contributions, two more for state taxes, two more for home-owner deductions, etc., etc., and the front page used for a summary to be carried forward onto Form 1040. This booklet could be supported by a more detailed reference work, containing the sections of REGULATIONS affecting deductions, suitably rewritten, arranged parallel to the booklet, and indexed in the booklet. This reference work could be made available through libraries, post-offices, banks, etc., for the benefit of taxpayers who felt the instruction-worksheet booklet did not clear matters up. Incidentally, if the handling of deductions could be standardized permanently, the taxpayer might be issued an extra book for use in keeping a journal of outlays which will constitute the current year's deductions when next year's return is made out.