Economic forecaster Michael K. Evans proposed yesterday a $40 billion tax cut "as quickly as possible" to help the nation in its recovery from a recession he said will be more serious than generally anticipated.
Evans, the former head of Chase Econometrics, commented at a news conference in which he announced a $5 million agreement with a Control Data Corp. subsidiary to provide new Evans forecast data and economic models through an international data services network.
According to Evans, who has established a new company in Washington to complete ultimately with his former firm and such other leaders in the field as Data Resources Inc., said a massive tax cut -- equally divided to stimulate savings as well as consumption -- is the "best answer" to current economic problem.
"A tax cut in 1980 is virtually inevitable . . . Indeed, to the list of 'sure things' that commonly encompasses only death and taxes we can now add a third: tax cuts in recession years which also happen to be election years," Evans said in a brief forecast distributed yesterday.
For this reason, "it is essential to pass proper tax legislation," he added. Specifically, Evans called for:
A $20 billion, across-the-board cut in personal income taxes to encourage spending in an era when individuals are increasingly strapped for money.
Savings and investment incentives of $20 billion, including a reduction in depreciable lives of capital goods; and exemption from all personal income taxes of the first $1,500 per year in interest income, dividends and capital gains roll-overs; and a decline to 44 percent from 46 percent in the corporate income tax rate.
Evans also predicted that real gross national product will decline 2.6 percent this quarter, with continued declines through the first quarter of 1980, followed by a "much more sluggish' recovery than normal. He forecast that unemployment will rise steadily starting this month to a peak of about 8 1/2 percent in mid-1980. Inflation will continue to advance one percent a month throughout 1979 and fall only to 9 percent next year, with prices of food, apparel and services expected to accelerate in the coming months, Evans said.
He said this discouraging outlook exists because the "underlying core rate of inflation will not fall below 8 percent unless major steps are taken to raise productivity from its dismal one percent annual growth rate of the past decade."
A boost of $20 billion in investments and savings could reverse this trend, he argued. There would be no immediate reduction in inflation from passage of such a tax cut, but it would "have a gradually increasing effect that would lower inflation by about one half percent in 1981 and as much as 2 percent by 1985," Evans forecast.
Under a contract with Chase Manhattan Bank of New York, owner of Evans' former company, Evans remained associated with Chase until Tuesday. He sold the remaining shares in his former firm to Chase Bank last January and assumed a part-time position as chief economist.
Subsequently, he opened Evans Economics Inc. in Washington. Yesterday, Evans announced that the new firm will begin constructing a complete economic model for forecasting purposes starting next March 3, when a non-competition clause with Chase Econometrics expires.
With a staff of more than 20 professionals, Evans said he will develop industry, international, agricultural and foreign exchange models and forecasting, starting immediately. This information and the broader economic model work to be added next year, will be supplied to customers over the data network of Service Bureau Co., a CDC subsidiary, under a five-year contract.
Evans claimed that his new economic modeling system will be significantly different from those now available -- principally through introduction of a series of "satellite models" for smaller segments of the economy. Economic models have become larger and larger, "making them more difficult to understand and manipulate," he argued.
By selling smaller models for specific sectors of interest to one client, as well as a broader model of all sectors, Evans said many smaller companies could begin using such tools. The largest corporations now spend up to half a million dollars a year for complete forecasts, but the Evans models could cost a smaller firm $10,000 to $15,000 a year, he stated.