January 2013 will not only see the inauguration of a President, it could mean massive federal budget cuts through what is known as the sequestration, which because of the Budget Control Act, will lead to mandatory cuts in discretionary spending to achieve $1.2 trillion in savings from 2013-2021, unless Congress takes action.
One can have a legitimate debate about how much and when spending cuts should occur, but what should not be up for debate is whether necessary spending cuts will include federal support for research and development (R&D). As it stands now, sequestration will lead to a cut of $12.5 billion of federally-funded R&D in 2013 with similar cuts through 2021. The consequences of this cut on the already sluggish economic recovery will be significant.
R&D is a critical investment that leads to future economic growth as well as job creation when we are not at full employment, which according to the CBO is unlikely to be the case until at least 2018. Specifically, federal R&D is the foundation from which a significant portion of today's high-tech economy is built. To stop building further at the basic level will stop expansion of the economy. Without federally funded research, companies like Cisco and Genentech would not exist today. The products and brands that we all use on a daily basis like the iPhone, Apple, Google, Amazon, Xbox, Facebook, Pfizer, Genentech, iRobot and hundreds more are all built upon basic research that was performed on the basis of federally funded R&D.
Because of the key role federal R&D plays in driving U.S. innovation, productivity, and economic growth the Information Technology and Innovation Foundation (ITIF) modeled the impacts of R&D cuts on GDP, patents, and U.S. jobs. Using a baseline of no nominal growth of R&D between now and 2021 (which is in fact a cut when future inflation is taken into account) this results in a cumulative reduction in U.S. GDP of $203 billion; equivalent to taking away from U.S. consumers all new motor vehicles purchased over six months, over two years of airline travel, or six years of attendance at professional sporting events - football, baseball, basketball, NASCAR and more. Using more realistic baselines mean even bigger GDP losses of between $565 and $860 billion.
These cuts to R&D will also mean significantly fewer jobs. Not only do R&D investment cuts lead to fewer jobs from direct layoffs due to budget cuts, they lead to fewer jobs because the economy is producing less innovation. Imagine far fewer new technology business startups as well as a failure of existing company's expansion due to the reduction of new products. Overall, sequestration cuts to R&D will mean approximately 200,000 jobs fewer every year from 2013-2016.
Reducing the budget deficit is important, but it should not and does not have to come at the expense of growth-inducing investments in areas like federal support for R&D. In fact, undermining growth capability is disruptive of a deficit control policy. Cutting federal support for R&D, a key "fuel" for the U.S. economic growth engine, would not only lead to a relatively smaller U.S. economy and higher unemployment, it would reduce U.S. global competitiveness precisely at a time when the U.S. economy is struggling to stay in the race for global innovation advantage.