Proposed U.S. budget cuts raise fears about tech innovation
President Donald Trump's proposed FY 2026 budget slashes funding for federal agencies, including NSF and NIST, which support tech research and innovation in the U.S.
Proposed budget cuts to federal research agencies could hinder U.S. technology innovation and its ability to compete globally, as tech rivals such as China heavily invest in research initiatives.
President Donald Trump's budget request for fiscal year 2026 makes significant cuts to federal science and technology research agencies, including the National Science Foundation and the National Institute of Standards and Technology. The proposed NSF budget cut would slash the agency's funding in half, from nearly $9 billion to $3.9 billion in FY 2026. NIST is facing a $325 million budget cut.
Trump has also proposed cuts to the National Institutes of Health, NASA, the Cybersecurity and Infrastructure Security Agency and the Small Business Administration. In the budget request, the administration said after assessing FY 2025, it found "spending contrary to the needs of ordinary working Americans." The administration focused its efforts on eliminating FY 2026 funding for agency programs on climate and gender, and looked to move some governmental services to state and local governments.
NIST and NSF are government agencies charged with supporting technology research and development in the U.S. and promoting innovation and global competitiveness. Federally funded research plays a key role in driving U.S. scientific and technological innovation, said Rob Atkinson, president of the Information Technology and Innovation Foundation and a critic of the proposed federal research agency budget cuts.
Atkinson said federal research provides robust groundwork for U.S. innovators. He pointed to Apple's iPhone, noting that many of the core technologies powering the devices -- including cellular technology, voice recognition software and multi-touch technology that enables touchscreens -- can be traced back to federally funded research.
You'll see absolute levels of decline in U.S. innovation.
Rob AtkinsonPresident, Information Technology and Innovation Foundation
"Does that mean they were going to build an iPhone? Of course not, it took the genius of Steve Jobs to put the ingredients together," Atkinson said. "But without the federal government, the ingredients would be suboptimal."
Cutting budgets for federal research agencies like NSF and NIST will significantly affect U.S. companies' ability to develop and create new products, he argued. Atkinson said he sees "absolutely no benefit" from the proposed cuts.
"You'll see absolute levels of decline in U.S. innovation," he said.
U.S. budget cuts' effect on innovation
Federal research agencies play a critical role in anchoring what Atkinson calls "innovation ecosystems," such as research and innovation labs at MIT, Harvard, Stanford and Research Triangle Park, a global innovation center in North Carolina. On top of budget cuts at federal agencies, the administration has also significantly cut funding for several U.S. universities, including Harvard.
Weakening federal research agencies harms those innovation hubs, making them "less robust," Atkinson said. Meanwhile, countries including U.S. tech and trade adversary China are investing heavily in technology research and development.
"That matters because other countries are really expanding this," Atkinson said.
Indeed, the U.S. has been slipping in rankings over the last 40 years in terms of R&D spend as a percentage of the economy, said Rick Lazio, senior vice president of tax consulting firm Alliantgroup.
In an era of advanced technology, cybersecurity and generative AI, Lazio said, the U.S. is "going in the wrong direction."
"China has been very quickly moving toward parity in terms of their investment in research and development," he said. "Of course, that economy has transformed over the last 40 years, beyond just being a manufacturing economy to being a strong competitor in technology."
Atkinson said he thinks the proposed budget cuts are only the first wave. The Trump administration will likely pursue more cuts, and "research is an easy target."
Budget reconciliation, tax bill efforts underway
The proposed FY 2026 budget has not yet been approved as Congress works through the budget reconciliation process, which is a fast-tracked method for federal budgets to pass the Senate after committees in the House of Representatives develop the legislation. The Senate can't filibuster, or delay a bill vote, in a budget reconciliation process.
In addition to considering U.S. research agency budget cuts, the Trump administration is focused on moving away from regulation, an initiative reflected in the House Committee on Energy and Commerce's recent budget reconciliation proposals.
That includes imposing a 10-year moratorium on state AI law enforcement. The committee also wants to include a $500 million appropriation to the U.S. Department of Commerce through 2035 to modernize federal IT systems and deploy commercial AI.
Similar to Trump's spending goals highlighted in the budget proposal, Rep. Brett Guthrie (R-Ky.), committee chairman, told the committee that spending cuts for climate programs and removal of regulatory burdens will advance technological innovation.
At the same time that Congress is considering Trump's budget request, efforts are underway to address measures within the 2017 Tax Cuts and Jobs Act that expire this year. The House Committee on Ways and Means released "The One, Big, Beautiful Bill" this week for markup.
Alliantgroup's Lazio said he hopes to see changes to the R&D tax credit in the tax bill to enable businesses to deduct R&D expenses more easily.
The R&D tax credit was established in the 1980s to boost and incentivize companies to invest in technology research in the U.S. However, during Trump's first administration in 2017, Congress changed the way companies can deduct the R&D tax credit from their expenses.
Instead of being able to deduct R&D expenses in the current year, R&D expenses are now required to be amortized, or gradually written off, over a period of five years.
Lazio said it's disincentivizing companies to innovate and invest in R&D projects due to higher tax bills. Alliantgroup client SX Industries, a global manufacturer based in Stoughton, Mass., faced a 74% tax increase in 2022 due to the changes in the R&D tax credit deductions. The company halved its R&D in the U.S. in 2023 and 2024, according to Alliantgroup.
"If it's not fixed, there will be businesses, especially small businesses, that will stop innovating," Lazio said. "Many will go out of business."
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining Informa TechTarget, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
