In 2021, President Joe Biden enacted the American Rescue Plan Act, which expanded the Child Tax Credit (CTC) significantly for one year, making it the largest U.S. child tax credit ever. It temporarily increased benefit levels to an annual maximum of $3,000 per child under 18, and $3,600 per child under 6, made the benefit available to families with low and moderate incomes, and paid the credit out in monthly installments, rather than delivering a lump-sum amount at tax time as the traditional tax credit.
Big Question: What Are the Economic Impacts of Policy?
One of the biggest questions faced by lawmakers and the executive branch is, “What will be the impact of this new policy?” It’s especially tricky with economics and taxes. Policymakers rely on economists to model the potential effects. At stake with the CTC expansion: whether the president’s proposal would reduce poverty as much as advocates say it would – without significant costs to employment.
Prior to the 2021 policy change, researchers tried to forecast the impacts of such an expansion, with different studies making different assumptions about the magnitude of the potential shift in employment. However, the implementation of the Child Tax Credit during the last six months of 2021 has enabled researchers to study the impacts of the expansion in the real world, as opposed to making assumptions based on other policies or theory.
Enter Envestnet | Yodlee Data Analytics
Researchers at the University of California, Irvine chose to evaluate the impact of CTC expansion using alternative big data in the form of de-identified consumer transaction data. Central to their thesis was the ability to examine large amounts of de-identified transactional data from bank accounts and credit cards enabling to identify changes in spending trends. For this task they leveraged Envestnet | Yodlee’s Data Analytics.
Alternative data capabilities made it possible to use a difference-in-difference design to sharpen the identification of the impact of CTC payments at scale. Likewise, Envestnet | Yodlee’s data allowed researchers to examine outcomes prior studies have not examined, such as detailed spending categories, savings, debt payments, and overdraft fees. Finally, the use of this alternative big data allowed for analysis of policy effects in real time, without the potential biases and costs that exist with survey evidence.
All told, this study provided the first empirical evidence of the realized impacts of the CTC using 1.17 billion transactions from bank and credit card accounts for one million Americans1 – and it suggests that families significantly benefited from the expanded CTC payments without significant costs to employment.
About Envestnet | Yodlee
Founded in 1999, Envestnet | Yodlee is recognized as a pioneer in financial data aggregation, having developed strong relationships with numerous financial institutions over many years. By combining data with intelligence – connecting vast amounts of de-identified transaction data with state-of-the-art analytics and machine learning – Envestnet | Yodlee provides visibility into an entire set of daily purchasing patterns, both online and in-store.
In order to obtain the most comprehensive coverage, Envestnet | Yodlee’s analytics incorporate millions of de-identified users and billions of transactions. These de-identified data sources include debit accounts and credit cards. This depth and breadth of data makes Envestnet | Yodlee the largest financial data platform for deriving deep insights and transaction pattern analysis.
The scale of Envestnet | Yodlee’s Data Analytics product allows customers to make data-driven crucial business decisions ranging from interim sales activity, event-driven activity, and business seasonality to competitor analysis and beyond using de-identified consumer transaction data. To view the research study, “Effects of the 2021 Expanded Child Tax Credit”, go here. Learn more about Envestnet | Yodlee Data Analytics.
1. Lourie, Ben, Shanthikumar, Devin M, Shevlin, Terry, Zhan, Chenqi, “Effects of the 2021 Expanded Child Tax Credit”, University of California, April 4, 2022.