ITIF warns that deep R&D cuts could have long-term economic impacts

 In a Digest article published May 8, 2025, SSTI outlined how the proposed White House 2026 discretionary budget proposal, which aims to cut non-defense discretionary funding by 22.6%, could impact TBED programs. In that article, we laid out some specifics of how the cuts were anticipated to affect key U.S. research-funding bodies. In a recent report from The Information Technology & Innovation Foundation (ITIF), Meghan Ostertag, compares four scenarios to estimate a variety of potential losses to the U.S. from 2026 to 2035 that would result from reduced federal R&D spending levels, with the second through fourth scenarios presented as benchmarks compared to the first scenario. The scenarios are described below. 

Cutting the R&D spending level as proposed in the White House 2026 discretionary budget proposal, which is $40.7 billion lower than the amount spent on R&D in 2025, is the first scenario. If it occurs, Ostertag estimates the cumulative loss in R&D expenditures from 2026 to 2035 could shrink the economy by nearly $1 trillion and reduce tax revenues by close to $250 billion. 

The second scenario illustrates the impact of maintaining the 2025 R&D budget amount on R&D spending. In this event, the cumulative loss in R&D expenditures from 2026 to 2035 could amount to $407 billion. Ostertag notes that though this is a good baseline for comparison to the baseline scenario, it doesn’t account for global economic trends, GDP growth, or the current state of techno-economic competition. “In reality, federal investment in R&D as a percentage of GDP has remained relatively stable for the past decade, hovering around 0.2% of GDP,” she notes, adding, “A more accurate benchmark would take GDP growth into account.” 

The third scenario maintains the 2025 R&D level as a share of U.S. gross domestic product (GDP); the relative size of R&D investment is neither growing nor declining. Ostertag notes that this benchmark uses the Congressional Budget Office’s (CBO’s) projection of GDP through 2035 and concludes that, when comparing a 20% cut to 2026 federal R&D investment with this benchmark, there is a cumulative R&D shortfall of $620 billion through 2035. 

The fourth aims to align U.S. R&D investment with China's level as a share of GDP. When comparing a 20% R&D cut in the federal 2026 budget to this hypothetical case, Ostertag found that the U.S. would experience a cumulative R&D shortfall of nearly $1 trillion from 2026 to 2035 should the requested cuts be implemented. 

This report also highlights impacts on the U.S. economy in the form of lowered GDP and tax revenues. For example, the author estimates that, over the next decade, a 20% cut to R&D in 2026 versus maintaining the same R&D intensity that was budgeted in 2025 would result in a reduction of GDP by $135 billion. And a 20% cut to federal R&D investment would reduce potential tax revenue by between $179 billion and $366 billion over 10 years.