Preliminary Analysis of How Federal Investment in Nondefense Research and Development Affects the Economy and the Federal Budget

CBO responds to a request for information about the economic and budgetary effects of federal investment in nondefense research and development (R&D). For this preliminary assessment of the effects of providing additional funding for such investment—which the Congressional Budget Office expects to update in the coming months—the agency examined two illustrative scenarios in which federal funding for nondefense R&D is increased by $30 billion per year for the next 10 years.

Under Scenario 1, the $300 billion increase in federal funding for nondefense R&D over the next 10 years is financed by a reduction in noninvestment spending of the same amount. That approach, which is deficit-neutral before macroeconomic changes are accounted for, is estimated to have the following effects:

• In 2035, real gross domestic product (GDP)—that is, the nation's economic output adjusted to remove the effects of inflation—would be 0.1 percent higher than CBO projects it would be under current law. In 2055, real GDP would be 0.8 percent higher than it would be under current law, which corresponds to an increase of 0.03 percentage points in the average annual growth rate of real GDP over the 2026–2055 period.
• The cumulative deficit for the next 10 years, 2026 to 2035, would be $31 billion (or 0.1 percent) smaller than it is projected to be under current law. The cumulative deficit for the next 30 years, 2026 to 2055, would be 2.1 percent smaller than projected under current law.

Under Scenario 2, that same increase in federal funding for nondefense R&D is financed by additional borrowing by the federal government. The effects on the economy would be similar to those under Scenario 1, but the effects on the budget would differ:

• In 2035, real GDP would be 0.1 percent higher than CBO projects it would be under current law. In 2055, real GDP would be 0.8 percent higher than projected under current law; the average annual growth rate of real GDP over the 30-year period would increase by 0.03 percentage points.
• The cumulative deficit for the next 10 years would be a total of $303 billion (or 1.4 percent) larger than projected under current law. However, the cumulative deficit for the next 30 years would be 1.1 percent smaller than projected under current law.

Although those two scenarios illustrate the effects of a $300 billion increase in funding, CBO expects that the results of a decrease in funding of a similar amount would be roughly symmetric—that is, the economic and budgetary effects would be of a similar magnitude but opposite sign.

The analysis presented here follows the framework the agency used in its August 2021 report about the effects of federal investment in physical infrastructure on the budget and the economy over 10-year and 30-year periods. CBO projected budgetary and economic outcomes under the two scenarios and compared them with its January 2025 baseline projections and with its March 2025 extended baseline projections, both of which reflect the assumption that laws governing taxes and spending generally remain unchanged.