Tax Consequences of Breaking the Buck in Money Market Mutual Funds

In the New York Times Deal Book, Steven Davidoff (Ohio State) dismisses claims in this industry-sponsored paper that the proposal to price mutual fund money market accounts by their net asset value rather than a fixed dollar per share would "generat[e] minor taxable capital gains or losses, leading to nightmarish complexity for tax calculations." Stephen Bainbridge (UCLA) responds in Money Market Reform and Taxes:

[G]iven the minuscule returns money market funds are paying these days, I probably would stop using them and just leave my rainy day savings/cash flow management funds in my checking account rather than trying to deal with headaches come tax time of having a constantly fluctuating NAV. Who wants to deal with paying taxes on, say, 10 cents worth of capital gains because you sold 1000 shares at $1.00 and had a basis in those shares of $0.9999? And what if you want to use actual cost basis instead of average cost basis? Maybe it'd be worth doing if you're a billion dollar institution, but my guess is that a floating NAV would drive retail investors out of the money market industry.