What would happen if taxes were switched from net income to gross income?

That is, what if there were simply no deductions?
And of course the rates lowered to make things “revenue neutral” for the populace as a whole.

The logic is that, same as sales taxes, it would ignore whether you personally come out ahead or behind at the end of the year. It would be pay-as-you go, straight off the top, like the payroll deduction now, but applied to all forms of income.

For one thing, everyone’s tax return would become the post card form.
And there would be no more complaints that rich companies paid no taxes.

Sure there would be winners and losers, like every tax law change.
But overall, the slice of the economy devoted to tax preparation and tax sheltering, and tax dodging, would all shrink a whole lot.

Lawmakers would lose their social engineering, ace-in-the hole.

The same individuals who benefit from the current mish-mash still come out on top: Those whose earnings untraceable / cash transactions. Contractors, food-service, drug dealers, et al.

Rich (and poor) companies don’t pay taxes. They work the expense into the cost of their goods and products and regressively pass them off to the consumer.

Much in the same way that tobacco companies pay fines.

Because it would make most retail businesses impossible. Suppose you have a grocery store. You buy $1000 worth of vegetables from your supplier, and sell them to your customers for $1100. So your profit on the transaction is $100. Under today’s tax regime you pay taxes on that $100. But under your proposal the business would pay taxes on the $1100. And it means that a business model of buying and selling low margin goods won’t work anymore. There’s no point in running a grocery store any more, you’d be taxed out of existance.

Lots of businesses will go bankrupt under this scheme. It radically disfavors retail businesses that buy and resell goods, and radically favors service businesses that don’t have large expenses.

Of course they pay taxes (assuming they make a profit). Obviously the company originally obtained the money from customers. But to say they don’t pay taxes is the same as saying I don’t pay taxes because I just pass the cost on to my employer, who has to pay me more so I can pay my taxes and still have a livable wage.

Unless the client companies got creative, it would for sure put consultants such as myself out of business.

Weekly airfare no longer deductible?
Hotel charges no longer deductible?
Hertzmobiles no longer deductible?

Hell, right there, you have about $1400 a week that I would pay out and nevertheless get taxed on. Places like Manhattan, San Francisco, it’s even more. And I pay taxes on all of this?

No. I’d be out. Make more take-home flipping burgers or working for Wal-Mart.

Perhaps the OP’s question was meant as (or would be more interesting as) “what would happen if there were no deductions unrelated to the costs of doing business.”

So, you’re still only taxed on profit, but no more deductions for mortgage interest, dependents, etc.

The price of housing would come down a lot, that’s for sure. And, if the change were to happen on a shorter time frame than the average mortgage, there’d be a whole lot of people defaulting on their home loans.

The three big “tax expenditures” are: employer-paid health insurance (cost the Treasury 125 billion in lost taxes in 2005), mortgage interest, and pensions, both 401(k)'s and retirement plans.
You could get rid of the first by directly paying for health insurance like Canada. This would have the nice side-effect of eliminating the privileged class in health: employees of large corporations. I personally think this keeps a lot of people working for large companies who might otherwise work for smaller ones, or even start their own businesses. The drag on our economy from our crazy health system is really huge, IMO.
You’d have to phase out the second slowly to avoid a big crash in house prices. Note as well that the capital gains exclusion on home sales is number 5 on the list, and then there’s the real estate tax deduction, 14th on the list. Housing, for homeowners anyway, is very very heavily subsidized. It wouldn’t be easy to get rid of all those subsidies, but it would certainly be advisable, if for no other reason than to put a brake on the clearcutting of all the land for those monster McMansions going up all over the place. (And you wondered where the money for all those monster houses was coming from?)
For the third, well, unless you want to take the savings rate to way below zero instead of only a little below zero, not to mention making the Social Security situation way worse, you’d probably want to keep that.

Source: Statistical Abstract, see table 469