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| Gautam Mukunda |
Gautam Mukunda writes: Trump's tax law threatens the future of scientific innovation in America.
US President Donald Trump's "big, beautiful bill" is now law. This means Americans should prepare for trillions of dollars in tax cuts that will disproportionately benefit the wealthy, more than a trillion dollars in cuts to Medicaid and other social safety net programs, a debt ceiling increase of more than $5 trillion, and an additional $150 billion for the administration's immigration crackdown.
But there's another important outcome that's harder to estimate: this bill is a declaration of war on science and innovation in the United States.
To understand why, it's important to start with the law's impact on the fiscal deficit. According to estimates from the Congressional Budget Office, the law will increase the national debt by approximately $3 trillion over the next decade, while other estimates place the figure much higher.
A Deadly Blow to a Profitable Government Investment
The fiscal deficit is a tax borne by the next generation. If it's used to invest and improve the well-being of future taxpayers, it won't be a problem.
No one regrets that the United States ran a budget deficit to finance World War II.
Currently, scientific research is the federal government's best investment, with science yielding returns of 150-300%, according to Federal Reserve estimates. Few investors have a similar track record.
In fact, federal funding for science has accounted for a quarter of all business productivity growth since World War II.
But instead of continuing this profitable investment, the Trump administration's proposed law will negatively impact both the supply and demand sides of scientific progress.
Funding Cuts Affect the Supply Side
The law's most severe blow to technology is its cuts to federal science support. The National Science Foundation, the primary mechanism through which the government supports non-medical research, has had its budget cut by 56%.
The foundation prepares the next generation of American scientists by supporting their training through prestigious graduate and postdoctoral fellowships (one of which I received while studying at MIT). The budget for these fellowships has been cut by 73%.
The National Institutes of Health has suffered a similar blow, with its 2026 budget cut by $18 billion.
Even if a future administration reverses these cuts, we will have lost an entire generation of American scientists and their potentially life-saving and economically viable work.
If the "Big Beautiful Act" for science and technology in the United States had been limited to that, it would have been a disaster.
Unfortunately, the funding cuts are just the beginning. America's most important scientific research is conducted at research universities, which have large endowments to support this vital work.
The law penalizes these educational institutions by imposing a tax on their endowments, which will cost many institutions hundreds of millions of dollars each year, most of which will come from scientific research budgets.
Removing Support Squeezes the Demand Side
This is not only true for the supply side of science and innovation. The law also reduced demand by eliminating federal support for future innovative industries. For example, there is widespread recognition that American industry will increasingly rely on battery technology in sectors ranging from the military to the automotive industry.
Previous administrations recognized the critical importance of leading the race in this technology and providing support to domestic battery manufacturers, but the law severely restricts eligibility for this support.
There's also artificial intelligence, which has an almost unimaginable demand for electricity. By 2030, AI data centers alone could require 14 gigawatts of new electricity generation capacity in the United States. Increasing wind and solar power capacity is becoming cheaper than relying on fossil fuels, making it a logical choice even for those who aren't concerned about climate change.
But instead of supporting wind and solar power, the law phases out the tax breaks that benefit these technologies, leading to higher electricity prices in every state.
The damage could even increase. One of Trump's methods for securing the law's passage was to pledge to conservatives that he would impose further restrictions on tax breaks for wind and solar installations.
The Impact of Debt Rise on Interest Rates
As the final blow, the massive increase in federal debt resulting from the law will likely lead to higher interest rates. Historical data indicates that for every 1% increase in the debt-to-GDP ratio, the yield on five-year Treasury bonds rises by 3 basis points. The Congressional Budget Office projects that the law will lead to a 24% to 33% increase.
While higher interest rates will have many negative effects, they will be particularly devastating for startups that specialize in developing the most advanced new technologies, often referred to as “deep tech” companies.
Negative Effects on “Deep Tech” Companies
This is because startup valuations are often calculated by discounting the company’s expected value at a hypothetical future liquidity event, typically an initial public offering or acquisition, to its present value using a discount rate. Interest rates determine this discount rate; the higher the interest rate, the higher the discount rate.
The discount rate has incremental implications. It's essentially inverse compound interest. If a company is a year or two away from a liquidity event, there's probably no problem.
However, deep tech companies typically take a long time to bring their shares to market, whether through an initial public offering or an acquisition.
Therefore, even relatively small changes in the discount rate can have a significant impact on current valuations.
As a result, high interest rates reduce the appeal of deep tech to entrepreneurs and investors alike.
While the Big Beautiful Law is indeed big, it is remarkably ugly from the perspective of innovation in the United States. Whatever the future of the American economy, the law suggests that breakthroughs in science and technology will constitute a much smaller portion of the economy.
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