I find this impossible to believe. Do you have any sources?

It's my anecdote from my top-10-ranked U.S. program with a small sample size, but I've heard similar from colleagues at two other programs. A lot of US PhD admission cohorts have been dramatically smaller the last 2 years, so some of it is just spreading the risk in terms of applications and only getting offers abroad.

But in our case, one student actively turned down an offer from a top-3 private university in the US (ranking in our discipline) for a UK university. He specifically cited the funding landscape, since that university had had many of its grants canceled at the time, but of course did not rule out returning post PhD. He was a top student!

We’ve had a significant increase in applications here in Europe. All the funding cuts leave less positions to apply for in the US

Same. I haven't heard of this at all from collaborators. In fact I hear about more and more graduate students.