Income Tax Simplification Act of 1981

Income Tax Simplification Act of 1981 - Title I: Tax Reforms - Amends the Internal Revenue Code to repeal all income tax credits except the credit for tax withheld on wages and the credit for tax withheld at the source on nonresident aliens and foreign corporations and on tax-free covenant bonds.

Repeals the exceptions to the tax inclusion of prizes and awards made in recognition of certain types of achievement. Repeals all limits and exceptions to the inclusion in the gross income of employees amounts attributable to group-term life insurance provided by employers. Repeals the limitations on the inclusion in gross income of unemployment compensation.

Repeals all income tax exclusions except the tax exclusion of gifts and inheritances and the tax exclusion of the income of States and municipalities.

Repeals all income tax deductions for individuals and corporations except deductions for: (1) trade or business expenses; (2) losses; (3) payments with respect to employees of certain foreign corporations; (4) nonprofit activities; (5) amortization of real property construction period interest and taxes; and (6) contributions to black lung benefit trusts. Repeals the deduction for trade or business expenses incurred in connection with certain appearances and activities designed to influence legislation.

Repeals: (1) the partial deduction for treble damage payments under the antitrust laws; and (2) the limited deduction for wagering losses.

Repeals all additional itemized deductions for individuals except the deductions for expenses relating to the production of income and alimony or support payments.

Repeals all special deductions for corporations. Repeals provisions allowing a taxpayer to elect to deduct certain costs relating to intangible drilling and development of oil, gas, and geothermal wells and relating to expenditures made in connection with certain railroad rolling stock.

Repeals certain limitations and exemptions relating to the disallowance of deductions for: (1) entertainment expenses; and (2) contributions of an employer to an employees' trust or annuity plan or compensation under a deferred-payment plan.

Repeals the exemption from corporate income tax of mutual savings banks conducting life insurance business. Repeals all special income tax rules relating to banking institutions.

Repeals the depletion deduction and rules for the tax treatment of natural resources and capital gains.

Title II: Income Tax Rate Reductions, Etc. - Amends the Internal Revenue Code to reduce individual and corporate income taxes. Abolishes the separate tax table for heads of households. Allows an income tax credit for personal exemptions. Repeals the deduction for personal exemptions.

Title III: Effective Date - States that the amendments made by this Act shall apply to taxable years after 1981.