That's right: for example, cost of goods sold is a deduction from gross income. So is business rent and utilities. Eliminating Schedule A itemized deductions (i.e., deductions from *net income*) is a relatively trivial simplification of the process. Sure, a flat tax may be somewhat simpler for most people who can file, say, a 1040-EZ or 1040A, but the vast, vast majority of tax issues and audits relate to what exactly constitutes net income. Can or should I deduct business-related meals? To what extent? Promotional expense? Sure, most would agree that office rent is a proper deduction, but who decides if a suite at the local ballpark for the purpose of marketing to clients is a legitimate, deductible business expense? What is the most effective way to amortize/depreciate capital assets and equipment? How about compensation? What's "reasonable?"
That is indeed 99% of the complexity of the tax code, and would not be touched by a "flat tax."