NSF grants are already hard enough to get as it is. A reduction of the budget to this extent would just make it a total waste of time to apply for NSF grants. It would have the effect of pushing academics further towards industry funding - which might be the entire point.

Industry funding is incredibly selective, and many industry funders are basically looking to turn university researchers into extensions of their R&D divisions. This will be disastrous for the concept of academic freedom - and the ability for people to explore interesting problems that might not have immediate commercial impact.