In a sobering new economic analysis, researchers from the Institute for Macroeconomic & Policy Analysis (IMPA), housed within American University’s Department of Economics, forecast far-reaching and long-lasting consequences should the U.S. government reduce federal funding for scientific research. The report — titled Preliminary Estimates of the Macroeconomic Costs of Cutting Federal Funding for Scientific Research — argues that such cuts would not only stifle innovation and undermine American scientific leadership but also deliver a profound blow to the broader U.S. economy, affecting every sector that relies on the downstream benefits of research and development (R&D), including the pharmaceutical and biotechnology industries.
The analysis comes amid renewed calls for fiscal austerity from the White House and a push by the newly formed Department of Government Efficiency (DOGE) to slash discretionary spending, including research budgets for nondefense agencies, such as the National Institutes of Health (NIH), the National Science Foundation (NSF), the Department of Energy (DOE), and the National Aeronautics and Space Administration (NASA). These agencies fund a substantial share of basic and early-stage research in the United States, much of which forms the scientific foundation for medical advances, new therapeutic platforms, and next-generation manufacturing technologies.
The IMPA team used a forward-looking macroeconomic model that incorporates several factors often left out of traditional forecasting tools, including the structural effects of market concentration, inequality, and sector-specific productivity trends. Their findings suggest that even modest reductions in public R&D spending would have cascading economic effects. Chief among them: reduced productivity growth, suppressed private investment, lower government revenues, and ultimately, a sharp contraction in national economic output.
“A 25 percent cut to public R&D spending would reduce GDP (gross domestic product) by approximately 3.8 percent in the long run,” the report states. This level of decline is roughly equivalent to the peak-to-trough contraction in U.S. GDP experienced during the Great Recession of 2007–2009 — a comparison that underscores the magnitude of the risk.
While the report focuses on long-run impacts, its timing speaks to growing short-term threats. With agency budgets already frozen or rolled back in real terms, the groundwork for economic stagnation may already be underway. And the pharmaceutical and biotech industries, which increasingly rely on public-private translational research partnerships and federal seed funding to develop high-risk, high-reward therapies, stand to be among the hardest hit.
Devastating Economic Impacts
The IMPA report leaves little room for ambiguity: the economic consequences of slashing federal R&D budgets would be both significant and far-reaching. According to the model, halving current nondefense public R&D spending would lead to a 7.6% reduction in U.S. GDP over the long term. That translates to a staggering economic loss — equivalent to making the average American approximately $10,000 poorer in today’s dollars than they would be under historical productivity growth trajectories.
This projected decline stems from two key mechanisms. First, public R&D has a direct effect on total factor productivity (TFP), the core engine of long-term economic growth. When funding for research declines, the pace of scientific discovery slows, the pipeline of novel technologies thins, and aggregate productivity lags. Second, the model identifies indirect effects through diminished private-sector activity. Public R&D acts as a catalyst for private investment, particularly in high-tech and life sciences sectors, by generating the foundational knowledge that de-risks commercial development. When that catalyst is removed, investment contracts, capital accumulation slows, and employment growth falters. In macroeconomic terms, public R&D “crowds in” private economic activity. Reducing it, therefore, has a disproportionately negative effect.
For the pharmaceutical and biopharmaceutical industries — among the most research-intensive sectors in the global economy — these findings carry special significance. The NIH alone represents roughly half of all nondefense federal R&D expenditures, and its funding has underpinned countless breakthroughs in human health. According to the IMPA model, a 50% cut to NIH funding would shrink GDP by 3.7% and reduce annual federal revenue by more than 4%. These aren’t abstract figures — they are forecasts of diminished innovation, fewer lifesaving therapies, fewer spinout companies, and slower growth for the entire biopharma value chain.
Critically, the report highlights that the biopharma sector’s dependence on public science is not simply historical: it is foundational and ongoing. Many of the industry’s most transformative therapies, including targeted cancer treatments, RNA-based vaccines, and monoclonal antibody platforms, trace their origins to NIH-funded work in academic labs and government research centers. Biopharmaceutical companies routinely license early-stage technologies developed through NIH grants, Small Business Innovation Research (SBIR) programs, or collaborative research partnerships with universities and national laboratories. These public investments provide the scientific raw material that industry refines into commercial products.
Cutting this pipeline at the source could send shockwaves through the innovation economy. Startups may fail to launch. Venture capital may dry up for early-stage translational work. Larger firms may see their internal pipelines narrow, forcing them to shift investment to incremental reformulations or low-risk therapies rather than bold scientific leaps. The long-term consequences could include a more risk-averse industry, a slowdown in novel drug approvals, and increased reliance on foreign innovation ecosystems.
In a global landscape where scientific and technological leadership is increasingly a matter of strategic competition, these effects would not only hurt domestic industry; they could imperil the United States’ position as a world leader in biopharma innovation. The warning is clear: starving public science today means starving industrial growth tomorrow.
Undermining a Proven Innovation Engine
The IMPA report does more than sound the alarm — it reaffirms a long-established economic truth: public investment in scientific research yields exceptionally high returns, often far exceeding those of typical private-sector ventures. Drawing on decades of empirical studies, the authors cite estimates that the social return on public R&D — the total benefit to society — ranges from 140% to over 400%, meaning every dollar invested in federal research can generate up to four dollars in long-term economic value.
These returns stem from the unique role government plays in funding research that private markets won’t touch. Early-stage, basic science is high-risk, expensive, and slow to pay off — characteristics that make it unattractive to investors seeking near-term commercial gains. Yet these foundational discoveries are precisely what drive the next generation of transformative technologies. Public funding closes this gap, enabling research that ultimately powers entire industries. From penicillin to the internet, from CRISPR gene editing to the COVID-19 mRNA vaccine platform, many of the most consequential breakthroughs of the modern era were incubated through federally supported research programs.
Importantly, the economic effects of public R&D go far beyond the lab or the initial patent. Federally funded research generates positive spillovers — non-excludable benefits that flow into the broader economy through knowledge transfer, workforce development, academia–industry collaboration, and follow-on innovation. For example, the foundational discoveries behind lipid nanoparticles, a key delivery mechanism for mRNA vaccines, were supported by decades of NIH grants. These discoveries now underpin a new class of vaccines and therapeutics with wide-ranging potential in oncology, infectious disease, and beyond.
Because these spillovers are difficult to trace directly and may take years to materialize, they are often undercounted in models, but their cumulative economic impact is profound. As the IMPA report notes, its estimates of lost GDP and federal revenue do not include these indirect effects, meaning the real economic cost of cutting R&D may be far higher than the model suggests. Nor does it account for lost synergies between public and private sector R&D, or the downstream effects on critical infrastructure — like research universities, national laboratories, and clinical trial networks — that rely on sustained federal investment.
“These preliminary estimates are likely lower bounds,” the authors caution. They point to NIH-funded innovations that have catalyzed advances not only in medicine but also in areas like artificial intelligence, advanced materials, and clean energy. In this sense, public R&D serves as a multi-sector innovation engine. one whose reach extends well beyond its original intent. Investment in biomedical research, for instance, often accelerates progress in data science, machine learning, imaging, and sensor technology, with commercial and societal benefits that defy narrow categorization.
For the life sciences in particular, where therapeutic innovation depends on increasingly complex biological, digital, and materials science integration, cutting public R&D risks snapping the interdisciplinary web that enables breakthrough advances. Simply put: public R&D is not a luxury — it is the scaffolding of the modern innovation economy.
Pharma’s Stake in the Science Budget
For leaders in the pharmaceutical, biotech, and broader life sciences industries, the IMPA report is more than an economic projection — it is a strategic alert. In an era already marked by mounting pressures (ballooning clinical trial costs, regulatory complexity, global supply chain fragility, and heightened competition for talent), reductions in federal scientific funding would deliver yet another blow to an industry already walking a tightrope between innovation and risk.
NIH and NSF funding do not just support academic curiosity; they fuel the entire innovation lifecycle. A cut at the research bench reverberates through the pipeline, delaying or derailing the translation of scientific discoveries into commercial therapeutics. Without a robust and continuous flow of basic science, the industry’s capacity to identify new drug targets, validate disease mechanisms, and develop first-in-class molecules is drastically curtailed. The result isn’t just fewer cures — it’s a shrinking opportunity landscape, especially for small biotechs and startups that rely heavily on federal grants or license their foundational IP from university research.
This dependency is especially acute when it comes to platform technologies, many of which emerged directly from decades of public investment. mRNA, CRISPR-Cas gene editing, CAR-T cell therapy, and AI-driven protein design all trace their roots to NIH- or NSF-supported research initiatives. These platforms are now not only enabling entire new therapeutic classes but also reshaping the competitive contours of the global biopharmaceutical market.
While the U.S. debates retrenchment, global competitors are moving in the opposite direction. China has dramatically increased public investment in biomedical science and biotechnology as part of its national innovation strategy, while the European Union’s Horizon Europe program earmarks billions for collaborative R&D and health tech infrastructure. In this context, cuts to NIH or NSF funding are not just about domestic economics — they represent a potential surrender of global leadership in a field that defines 21st-century competitiveness.
For pharma and biopharma executives, investors, and policy advocates, the implications are clear: defending public science is not a matter of charity or tradition — it is a matter of strategic survival. Industry must speak out not only in defense of its own pipelines but also on behalf of the scientific magisterium on which it depends. Continued prosperity, growth, and relevance in the global market depend on keeping that magisterium vibrant, well-resourced, and forward-looking.
A False Economy
To those advocating for fiscal austerity, cutting scientific research funding may appear politically expedient, an abstract line item with delayed payoffs and no immediate consequence for constituents. But the IMPA report makes a compelling case that such cuts are not just shortsighted; they are fiscally self-defeating. In fact, rather than reducing the federal deficit, slashing public R&D investment would shrink the economic base that sustains government revenues in the first place.
According to the model, a 25% reduction in nondefense public R&D would reduce federal revenue by 4.3% annually, while a 50% cut would drop revenues by nearly 9%. In absolute terms, this could mean tens of billions of dollars lost each year, more than erasing any notional “savings” from budget cuts. The economic contraction driven by reduced innovation, investment, and productivity leads to a smaller tax base, fewer high-paying jobs, and lower returns on private capital, all of which diminish government receipts over time.
This paradox is especially salient in the context of the pharmaceutical and biotechnology sectors, where the economic returns on a single breakthrough therapy can be staggering. The approval and commercialization of a first-in-class drug, especially one addressing a major unmet need, can generate billions of dollars in direct revenue, thousands of high-skill jobs, and entire ecosystems of follow-on innovation and manufacturing. Much of that value creation can be traced back to public investments made five, 10, or even 20 years earlier.
Take, for instance, the mRNA vaccine platform. Initial NIH and DARPA investments in nucleic acid delivery systems and lipid nanoparticles laid the groundwork for an innovation that not only saved millions of lives during the COVID-19 pandemic but also contributed more than $100 billion in combined economic value to companies like Moderna and Pfizer. That value was not an accident — it was the compound return of consistent, long-term public funding. The same holds true for countless other biopharma milestones, from cancer immunotherapies to gene therapies for rare diseases.
These returns don’t just benefit shareholders. They generate tax revenue, support domestic manufacturing, fuel exports, and reduce long-term healthcare costs. Cutting public R&D now would not merely slow progress; it would choke off future revenue streams that far outweigh the modest costs of maintaining research budgets.
More broadly, the report reframes public R&D not as an expense to be trimmed, but as a strategic investment — one that multiplies its value across generations, industries, and geographies. Like infrastructure or education, public science builds the capacity for future growth. Its dividends, while not always immediate, are consistent, measurable, and transformative.
As lawmakers weigh budgetary trade-offs in a politically polarized environment, the IMPA analysis offers a data-driven reminder: undermining scientific research in the name of fiscal discipline is a false economy. For the pharmaceutical and biotech industries, and for the U.S. economy as a whole, safeguarding public R&D is not only prudent policy, but essential economic strategy. The stakes are too high, and the returns too great, to justify anything less than full-throated support.
A Pattern of Policy Headwinds
The potential fallout from slashing public R&D funding cannot be viewed in isolation. It is part of a broader policy environment under the second Trump administration that, according to many analysts, poses accumulating risks to the scientific, pharmaceutical, and innovation-driven sectors of the U.S. economy. While each policy may be framed as an effort to rein in costs, assert political control, or promote national security, the combined effect is one of strategic disinvestment—just as global competitors ramp up their efforts to dominate high-tech and biopharma markets.
The proposed R&D cuts come alongside other recent moves with direct consequences for life sciences. Chief among them is the reintroduction of aggressive trade tariffs, particularly on ingredients and materials used in pharmaceutical manufacturing. Many of these inputs — ranging from active pharmaceutical ingredients (APIs) to excipients and packaging materials — are sourced globally, particularly from China and India. The renewed imposition of tariffs not only raises costs for U.S. drug developers and manufacturers but also increases uncertainty in an already strained global supply chain. For companies operating in just-in-time manufacturing environments or running lean clinical supply programs, such volatility can have material impacts on timelines, pricing, and even patient access.
Simultaneously, ongoing changes at the U.S. Food and Drug Administration (FDA) have raised alarms among drug developers and regulatory experts. The administration has signaled intentions to centralize regulatory decision-making and to scrutinize what it has called “excessive bureaucratic discretion” at agencies like the FDA. While framed as streamlining, these changes could erode the scientific independence and predictability that sponsors rely on to navigate the regulatory pathway. In particular, any disruption to the FDA’s accelerated approval programs, regulatory science initiatives, or international harmonization efforts could delay access to critical therapies and disincentivize investment in high-risk, high-reward programs.
Taken together with proposed R&D cuts, these policy shifts reveal a troubling trend: the systematic erosion of the public infrastructure that underpins private innovation. Life sciences companies do not operate in a vacuum; they depend on a reliable ecosystem of scientific discovery, regulatory clarity, international supply integration, and talent development. Weakening any single pillar makes the entire structure more vulnerable, but dismantling several at once risks collapse.
The IMPA report’s findings gain even greater urgency in this context. Public R&D is not merely one more line item in the federal budget — it is the connective tissue linking discovery to development, investment to output, and domestic policy to global competitiveness. Undermining that tissue while simultaneously destabilizing supply chains and regulatory norms amounts to a policy triple-threat that could curtail innovation, hurt public health, and cede ground to international rivals.
For biopharma leaders, the message is not just about science; it’s about strategic coherence. Safeguarding the future of American innovation requires more than defending R&D funding in isolation; it demands an integrated approach that preserves the conditions under which science, regulation, and market access can function in concert.
Conclusion
The IMPA report delivers a stark economic forecast: cutting federal funding for scientific research would not only hobble long-term U.S. growth but also undercut the very innovation infrastructure that has made the nation a global leader in pharmaceuticals, biotechnology, and advanced medical technologies. Far from being a prudent budgetary decision, these cuts amount to a short-sighted maneuver that risks compounding damage across the economy, slowing productivity, weakening competitiveness, and constraining future fiscal flexibility.
When placed alongside other policy shifts — from renewed tariffs to regulatory disruption at the FDA — a pattern emerges: one of disinvestment in the conditions that allow science and industry to flourish together. And while the brunt of this impact may be felt over years rather than months, the consequences are already forming in the present: strained supply chains, reduced pipeline diversity, and uncertainty for investors and innovators alike.
For pharma and biopharma leaders, silence is no longer an option. Industry must step forward — not only in defense of its own economic interests, but in support of the public research institutions, partnerships, and platforms upon which it depends. That means framing public R&D not as a sunk cost, but as a strategic investment that drives commercial success, global competitiveness, and public health outcomes alike.
Science is not just a pillar of innovation — it is a pillar of prosperity. Protecting it is not merely good policy. It is essential strategy for any nation that hopes to lead the next century of biomedical progress.