From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.
When the Trump administration moved this week to eliminate the Environmental Protection Agency’s Office of Research and Development, which is responsible for producing objective research on a wide array of environmental pollutants, it claimed to do so in the name of improving government efficiency. But the long list of cuts to federal science funding pursued by the administration will ultimately undermine one of the government’s most successful endeavors and leave the country ill-prepared to maintain its position as the world’s leader of innovation.
Alongside the EPA, several other federal agencies, including the National Institutes of Health (NIH), the National Science Foundation, the National Oceanic and Atmospheric Administration (NOAA), and NASA, have all been targeted for budget cuts. While many of these cuts have been mass layoffs of federal scientists, including nearly 1,200 of the EPA’s biologists, chemists, and toxicologists, some have been policy changes impacting the broader research ecosystem. At NIH, the administration has moved to cap support for “indirect research costs,” which cover expenses ranging from facility fees to administrative costs, at 15% of a grant’s value.
The research ecosystem in the United States is far from perfect. Many universities have increased administrative bloat over the past several decades that risks cutting into the efficiency of genuine research activities. Several university grant recipients have routinely negotiated reimbursement for indirect costs as high as 70% of the grant’s overall research value. Although some of these indirect costs include critical funding for maintaining high-tech laboratories and other legitimate expenses, high overhead diverts resources away from dollars that could have been used more efficiently as true R&D spending. A thoughtful audit to ensure that taxpayer money is being effectively allocated toward research activities, rather than avoidable administrative costs, is absolutely warranted.
But these rapid and sweeping cuts are far from this measured approach, causing unnecessary chaos, jeopardizing projects that may have otherwise led to vital breakthroughs, and indiscriminately eliminating skilled researchers. For example, the 15% cap at NIH is only around half of what grantees typically negotiated in the past. In response, top research universities and institutions have frozen hiring, laid off staff, and even trimmed research projects on cancer and Alzheimers. Meanwhile at NOAA, the hundreds of positions eliminated at the National Weather Service risks compromising the accuracy of weather data that everyone from researchers to local weather channels rely upon.
The federal government’s support for research is foundational for innovation from businesses. While the private sector often funds “applied” research and development, which can be quickly commercialized and profited from, the government’s primary responsibility is to fund “basic” research, which forms the foundation of knowledge for all other technological and scientific progress. This type of research often requires sustained long-term investment and the benefits can often accrue to entities other than the one that funds it, which often makes it too risky for private companies to pursue on their own. Federally funded research has been a critical building block for countless innovations, including mRNA vaccines, the internet, GPS, and even Ozempic. In addition, the government can enable research even when not directly funding it by collecting and sharing vital information, such as weather and disease data.
These federal investments drive economic growth and improve American lives. According to one study by the Dallas Federal Reserve, every federal dollar invested in non-defense R&D yields between 140% and 210% in economic benefits. In certain projects, these returns are even higher: One study of NIH’s Human Genome Project estimated that it generated an astonishing $178 for every $1 spent, resulting in nearly $1 trillion of additional economic growth.
Instead of further cuts that undermine this innovation and growth, policymakers should be working to reverse the decline in federal R&D investment, which has dropped precipitously over the past few decades when measured as a share of the overall economy. Today, public R&D spending is only around half of its historical average and nearly a quarter from its peak set during the space race.
Continuing to cut support would risk losing that status to competitors such as China, which over the past few decades has been increasing R&D spending at a much faster rate than the United States. Already, both China and Europe are seeking to capitalize on the administration’s decisions by enticing top science talent to join them abroad. The United States has long been a global leader in research and innovation, but if Trump continues to make reckless cuts to the science ecosystem, we risk watching that leadership slip away.
This week, the Federal Reserve gave its first updated economic projections since Trump came into office. Due to the impact of tariffs and increased economic uncertainty, Fed officials projected that real GDP growth this year would be much lower than expected — only 1.7% compared to the 2.1% predicted in December — while inflation and unemployment would be higher.
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