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The Trump administration today released the first document of its proposed budget for the 2017-18 fiscal year. The document only covers discretionary programs (those with funding that regularly runs out unless Congress votes to give them new money). Still to come are proposals for mandatory spending, which makes up roughly 70 percent of all spending, and proposals for all of the revenue sources. But the preliminary evidence suggests that the administration is taking its cues from a deeply flawed framework put forward by the Heritage Foundation. It is proposing to slash federal investments in critical areas that contribute significantly to economic growth.
The immediate takeaway is that the Trump administration is advocating a huge increase in defense spending, which it proposes to pay for with large cuts to almost all other federal departments. In doing this, the budget would significantly shift spending away from public investment in education, research, and infrastructure, among other areas. This matters because these kinds of investments are essential for faster economic growth, and without that, living standards will stagnate.
The reality is that if the United States is going to successfully manage its growing financial problems and improve living standards for all Americans, it needs to increase its investment in the primary drivers of innovation, productivity, and competitiveness. The Trump budget goes in the opposite direction. If these cuts were to be enacted, they would signal the end of the American century as a global innovation leader. America’s lead in science and technology was built on the fact that in the 1960s the U.S. government alone invested more in R&D than the rest of the world combined, business and government. The Trump budget throws this great legacy away and puts the country on a path to being an economy that is a “hewer of wood and drawer of water.”
Although the budget does not contain enough detail to see what would happen to every individual program, such as the Defense Advanced Research Projects Agency (DARPA), it does mention many that are important for innovation, productivity, and competitiveness. For example, it would eliminate funding for the Overseas Private Investment Corporation and the U.S. Trade and Development Agency, both of which help U.S. exporters compete in foreign markets. Also gone are the Manufacturing Extension Partnership (MEP) program, which helps disseminate technology and management improvements to small- and medium-sized manufacturing companies. In education, the president would eliminate more than 20 programs, including the Teacher Quality Partnership and Impact Aid Support Payments for Federal Property, dumping more of the burden of improving education onto states and localities.
In research, the administration proposes to eliminate ARPA-E, just as new energy technologies are becoming competitive with traditional sources, on the specious premise that “the private sector is better positioned to finance disruptive energy research and development and to commercialize innovative technologies.” The Department of Energy’s Office of Science would lose $900 million, or nearly 20 percent of its funding. The budget cuts funding for the National Institutes of Health, perhaps the world’s premiere medical research facilities, by over 18 percent. This accompanies cuts of 40 percent in the science programs at the Environmental Protection Agency and 26 percent for the research arm at the National Oceanic and Atmospheric Administration. Although the budget does not mention the National Science Foundation, cuts there also seem probable. Since these agencies fund a great deal of research in universities, cuts to them may prematurely end many careers among the next generation of research scientists.
The federal government does a lot of things that contribute to economic growth. Key among these are funding education, supporting research, and building infrastructure. Although some of this is also done at the state and local levels and in the private sector, federal involvement often plays a big role in encouraging additional spending from other sources. In the absence of contrary evidence, there is no reason to think that a reduction in federal funding will be made up by higher spending somewhere else. Indeed, withdrawing the federal government from some of its core responsibilities may cause others to also cut back their investment because they anticipate slower growth and fewer opportunities going forward. Any spending cuts will slow economic growth in the short-run. However, cuts in the government’s efforts to boost innovation and investment have a more lasting effect because they also eliminate the contributions to higher growth that are the result of this spending. ITIF has already outlined a plan for cutting the deficit while still protecting federal efforts to boost innovation and competitiveness.