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Sequestration Cuts to R&D Could Reduce U.S. GDP by Over $200 Billion

WASHINGTON (February 26, 2013) - The Sequester, which is scheduled to take effect March 1st, will lead to cuts in defense, education, social services and other areas. However, the most devastating, long-term effects from sequestration will be in innovation, and these could ultimately reduce U.S. GDP by over $200 billion per year.

In a report analyzing the impact of the sequester on innovation, the Information Technology and Innovation Foundation (ITIF) modeled the impact of the cuts to federally supported research and development on intellectual property development, technology development, productivity and America's standing in the global innovation system. The resulting loss of innovation capacity could reduce GDP by a minimum of $203 billion per year by 2021.
 
"The budget deficit is a significant problem because it is a 'tax' on future generations. But across-the-board cuts that slash investments in research also impose a tax on future generations by ensuring that they will suffer from a less prosperous economy," says Robert Atkinson, President of ITIF. "We need to take a more comprehensive approach to the budget that focuses on increasing investment, cutting spending, especially entitlements, and raising taxes, especially on individuals."

ITIF has argued that the United States actually faces three deficits: the budget deficit, the trade deficit (the annual difference in U.S. imports versus exports), and the investment deficit (the shortfall of investments in scientific research and new technologies that provide a critical foundation for long-term economic growth). Overall, America's three deficits total almost $21 trillion and are projected to grow to over $41 trillion in 10 years, with the budget deficit making up less than half of the total shortfall.
 
"By continuing to fixate on the budget deficit alone, policymakers miss the broader problems the American economy faces, including the stagnation of funding to support the innovation that is necessary to promote new product creation, business development and job growth," Atkinson adds. "We should be focusing on reducing the investment and budget deficits together, rather than implementing a policy that will reduce investment and GDP growth."