IN THREE fundamental respects the Reagan administration appears to have touched up its tax simplification plan last week to make it look a little rosier than it is. The most important of the prettifications had to do with revenue. The official presentation glossed over how hard the Treasury had to strain to make the plan come out even, or "revenue-neutral." The closer one looks, the more this seems like a paper neutrality. In realistic terms there are probably more cuts in the plan than recoupments. The administration left some of the pain to be administered by Congress. The alternative would be a higher deficit.

The other two areas of uncertainty are distributional. The administration says that business taxes would go up and individual taxes come down, compared with current law. That is a good selling point in Congress. But it now appears that, in the long run, business taxes would not go up as much as the revenue tables published last week suggest. Some analysts even think that the business tax burden could fall.

The administration also says that its plan would not much affect, and certainly would not reduce, the progressivity of the income tax. Its figures show each income class paying after simplification about the same share of total income taxes as paid today. But other data suggest that some of the largest tax cuts, in percentage as well as dollar terms, would occur in the very highest income brackets.

The simplification plan is essentially a trade-off. The happy part is lower tax rates for both individuals and business (and for individuals, a higher personal exemption). The price is many fewer of the deductions, exemptions and other special provisions that now help people and companies reduce what they owe. The Treasury, in a plan it put forward last November, proposed wiping out almost all these special provisions. We embraced that squeaky-clean version, but others declared it unrealistic, and the president sent it back for revision. The revised version now would preserve and even strengthen some important preferences in the current code: the soft tax treatment of capital gains, the tax-exempt status of most fringe benefits, stepped-up depreciation allowances. All these concessions cost money and cost the plan some of the simple clarity that made it attractive. To make up this money the Treasury now imagines, among other things, a new and complex "transitional" tax on business that would raise about $60 billion over the next four years. This transitional tax is a kind of revenue plug, not much more than a blank waiting to be filled in. How Congress will respond to it is unclear.

The backpedaling from Version One to Version Two also accounts for some of the distributional questions that have arisen about the plan. The new depreciation formula includes an indexation feature; depreciation write-offs would rise in the future with inflation. There have been no official estimates of how much this eventually might cost, but some private and congressional analysts think it would be so much that business could come out even under the Reagan plan. The new plan would also reduce the taxes of individuals in the $200,000-and-up income bracket by an average of 10.7 percent when fully effective. That is more than would have been achieved in the first administration plan, and more than the new plan would do for middle-income groups. Only the poor would fare better; many of them would be dropped from the tax rolls entirely.

None of this means that the president's simplification plan is necessarily fundamentally flawed. But we -- the public, the Congress and assorted worriers everywhere -- cannot yet fully understand it. We do not really know who would pay, and how much or what effect the plan would have on the public finance, on investment rates and the distribution of income in the country. Simplification is complicated. Congress -- the Democrats especially, because they are freer to do so -- must dig