By Richard Rubin

Itemized deductions are on the chopping block as President-elect Donald Trump looks for ways to offset the revenue loss from his proposed tax-rate cuts.

Experts say the challenge -- besides the political popularity of tax breaks for mortgage interest and charitable contributions -- is that there isn't enough money there to accomplish his goal.

"There's just no way that restricting the deductions that Trump has talked about comes anywhere close to eliminating the tax cut for the wealthy in his plan," said Bill Gale, a senior fellow at the Brookings Institution. "It's just arithmetic."

Steve Mnuchin, Mr. Trump's pick for Treasury secretary, said Wednesday that high-income households would get no net tax cut as a group,a statement that is at odds with every analysis of Mr. Trump's plan.

Stephen Moore, who helped develop Mr. Trump's tax plan, said the proposal was designed so the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%.

The idea is that high-income households would get no net tax advantage from that swap. But that approach means the deduction limits don't offset the tax cuts on business income, estates and capital gains, which all flow disproportionately to top earners.

Tax cuts on capital gains, dividends, businesses and estates are especially skewed to the high end of the income and wealth distribution, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a group that advocates for low-income families.

"You have all these other tax cuts that are disproportionately targeted to the wealthiest people in the country," he said. "That's the core element of the plan."

Taxpayers under current law can itemize their deductions if they exceed the standard deduction, which this year is $6,300 for individuals and $12,600 for married couples. Most taxpayers don't exceed that threshold, and fewer than 30% are projected to itemize in 2017.

The largest deductions are those for mortgage interest, charitable contributions and state and local taxes. Those three breaks alone total $200 billion in forgone revenue in 2017, according to the congressional Joint Committee on Taxation.

Mr. Trump would squeeze deductions from both ends. He would more than double the standard deduction and limit itemized deductions to $100,000 for individuals and $200,000 for married couples.

That deduction cap would raise about $559 billion over a decade, according to the Tax Policy Center, a project of Brookings and the Urban Institute. Even with that cap, Mr. Trump's plan would reduce government revenues by about $6.2 trillion over a decade.

One thing that will become more apparent as Mr. Trump's plan moves through Congress is that the impact of deduction limits doesn't fall evenly. The state and local tax deduction tends to benefit residents of high-tax states such as California and New York.

The mortgage interest deduction helps the upper middle class, especially in areas with high housing costs. More than 60% of the tax break goes to households between the 80th and 99th percentiles of income, according to the Tax Policy Center.

And the charitable deduction helps the highest earners. According to Internal Revenue Service data, the top 0.001% -- that is about 1,400 households -- reported 9.5% of charitable contributions.

The focus on deductions ignores other tax benefits that high-income households get. They receive the bulk of capital gains and dividends, which are taxed at preferential rates.

They also control the timing of those gains, deferring taxes for years and not paying anything as the value of their stocks and other assets appreciate.

Mr. Trump's plan is the latest attempt to curb deductions as part of a tax code overhaul. The House Republican plan would eliminate the state and local tax deduction while preserving write-offs for mortgage interest and charity.

President Barack Obama proposed a different idea. His plan would cap deductions and other tax breaks for top earners as if they were in the 28% bracket. That means a $1,000 deduction would be worth at most $280 in lower taxes, even if the taxpayer was in the 39.6% tax bracket.

That plan went nowhere in Congress.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

November 30, 2016 20:42 ET (01:42 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.