The real cost of the sequester

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Federal support of innovation through funding of basic research, applied research, and technology development is a key driver of economic growth. Examples abound from lasers to computers to the Internet. And let’s not forget the 30-year government funding of hydraulic fracturing research which is at the heart of today’s natural gas revolution. In addition, federal research investment spurs private investment. Every additional dollar of public research has the effect of inducing an additional 27 cents of private R&D investment.

Unfortunately, despite our long history of federal support for research, the United States is falling behind our global competitors. We are now just eighth among OECD countries in R&D as a share of GDP, while federal R&D investment grew in constant dollars at just 0.3 percent per year from 1987 to 2008. In contrast, China has announced they will spend $1.5 trillion over the next seven years to enhance its research and innovation system. This growing investment deficit, the shortfall of investments in scientific research and new technologies that provide a critical foundation for long-term economic growth, is a key factor in our continued economic stagnation and increasing global competitive disadvantage.

The $1.2 trillion in spending cuts mandated by the Sequester over the next nine years will only exacerbate this investment deficit. It is estimated that sequestration will result in $12.5 billion a year in cuts to federally funded research and development. These cuts will negatively impact patent generation, new product and process development, business creation and overall economic development. This loss of innovation capacity could result in 200,000 fewer jobs annually, from 2013 to 2016, and reduce GDP by a minimum of $203 billion per year through 2021.

Let’s be clear. The budget deficit is a significant problem because it is a “tax” on future generations. But across-the-board cuts that reduce investments in research also impose a tax on future generations by ensuring that they will suffer from a relatively less prosperous economy. It is time for policymakers to cut spending and raise taxes, especially on individuals, but also increase investment, especially on research.

By continuing to focus on the budget deficit alone, policymakers, advocacy groups, and commissions such as Simpson-Bowles and Domenici-Rivlin miss the broader problems the American economy faces. To ensure our overall economic health, we must address the stagnation of funding for innovation that is necessary to promote new business development, global competitiveness and job growth. Government should be focusing on reducing the investment and the budget deficits together, not implementing sledge-hammer budget cuts that will ultimately make our economy weaker.

Atkinson is the president of the Information Technology and Innovation Foundation.