Cutting Federal R&D Investments Would Cost the US Economy Trillions

Strategic Insights -

A new report by the Information Technology and Innovation Foundation (ITIF) warns that reducing federal investments in research and development (R&D) would have severe consequences for the US economy. According to the report, a 20% reduction in federal R&D funding would shrink the US economy by up to $1.5 trillion over 10 years. The report's analysis finds that such a cut would lower US GDP by nearly $1 trillion and reduce tax revenue by almost $250 billion.

Key Takeaways:

  • A 20% reduction in federal R&D funding would reduce government spending by $407 billion compared to holding 2025 funding flat, and by $620 billion compared to maintaining R&D intensity as a share of GDP.
  • The same reduction would lower US GDP by $717 billion compared to maintaining the 2025 budget level, by $995 billion compared to maintaining R&D intensity, and put the US economy $1.46 trillion behind China's expected growth.
  • A 20% cut in federal R&D would result in foregone federal tax revenue of between $179 billion and $366 billion.
  • The report emphasizes the critical role of public R&D in driving innovation, with 70% of federal R&D dollars flowing to universities and labs that train the next generation of STEM talent.
  • Cutting R&D would weaken the US workforce by narrowing the Ph.D. pipeline and pushing scientists abroad.

Statistics:

  • The US gross expenditure on R&D totaled $823 billion in 2023, compared with China's $781 billion.
  • China's average annual R&D investment grew nearly twice as fast as that of the United States between 2019 and 2023.
  • At that pace, China likely overtook the United States in total R&D spending in 2024.
  • A 20% cut in federal R&D would shrink the U.S. economy by up to $1.5 trillion over 10 years.
  • The same reduction would lower US GDP by nearly $1 trillion and reduce tax revenue by almost $250 billion.

Sources:

  • Information Technology and Innovation Foundation (ITIF), "Cutting Federal R&D Funding Would Cost the U.S. Economy Trillions" (press release).
  • Meghan Ostertag, research assistant for economic policy at ITIF, as quoted in the ITIF press release.
  • Robert D. Atkinson, ITIF President, as quoted in the ITIF press release.