PhD programs train scientists. I have often compared going to grad school in the sciences to years of getting punched in the face by nature telling you, "sorry try again!" Your mentor (in the best of circumstances) teaches you how to navigate that and sharpens your mind. In the process you learn how to ask the right questions. Doesn't sound like much, but the right question and how to ask it is the core of discovery and so the core of innovation.

You can certainly learn those things in industry, but you'll be working at a different place in the innovation cycle. Almost always you'll be working quite a bit further along than the initial discovery. There will be many challenges, but core, fundamental discoveries remain disproportionately generated by blue sky/harebrained schemes hatched in academia.

This is because the number of failures tolerated in academia is vastly larger than in industry. If you spend 7 years repeatedly failing at everything until one thing works, we just call that a PhD. If you do that in industry, we call that 7 jobs in 7 years (a little reductive, but you get my point). If you injure that part of the innovation ecosystem, there will be fewer wild ideas to build companies off of, and we will all be poorer for it.

You also miss the knock on effect of making it so that only the better-off can afford grad school. Already grad school suffers from that bias, and this would only make it worse. We want the best minds regardless of wealth to get as highly trained as possible to discover nature's secrets.

Cutting PhD students would require cutting the number of undergrad students educated and classes offered to them. This would prevent science and engineering students from getting their bachelor's on time because of requirements for science sequences. An undergrad 4-year degree becomes 5 years long or aren't completed at all.

The need to expand class offerings to teach undergrads requires TAs to teach labs. Our department is already over-offering classes compared to the number of grad student TAs.