Using TARP funds for job creation: creative or reckless?

As banks pay back TARP funds, President Obama and Democrats consider putting that money toward job creation. Conservatives say that will just add to the deficit.

By , Staff writer

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    President Barack Obama responds to a question about the economy in the Oval Office of the White House in Washington Monday.
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President Obama and congressional Democrats haven't even announced their latest job creation plans, but already they're stirring controversy with an idea on how to pay for it – by tapping the Treasury's so-called TARP funds.

The Troubled Asset Relief Program (TARP) was created by Congress 14 months ago to save the financial system from a collapse that threatened the whole economy. Now, as many banks are repaying money that the government had invested, Democrats say the unexpected windfall can be used to finance a jobs bill that may cost $50 billion or more.

But Republican lawmakers argue that the plan still expands the deficit, whether or not TARP is cited as the source of money. They put it this way: Borrowing less on the TARP bailout doesn't mean the Treasury should then borrowing more for a jobs program.

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The spin from both sides regarding the TARP funds could shape the broader debate over a jobs package. Mr. Obama and congressional leaders could try several tactics to boost employment. The possibilities include a new infusion of federal infrastructure spending, additional aid to state and local governments (to reduce planned layoffs), and tax incentives for businesses to hire.

Creating jobs vs. increasing the deficit

The ideas are surfacing at a time when the unemployment rate stands at 10 percent. Many small employers feel constrained by tight credit conditions and uncertainty about the strength of an economic recovery next year.

The economy is the top public concern. Yet opinion polls also show that deficit spending by government also ranks high on the public worry list.

The TARP fund was used largely to aid banks and other troubled financial companies. The program soon widened its bailiwick to include support for automakers. But finance experts say it would be hard for the TARP program itself to pay for a job-creation program.

"I don’t think they could actually insinuate into the TARP appropriations process a jobs bill," says Brian Bethune, an economist at IHS Global Insight in Lexington, Mass. "The original intent of it [was to deal with] financial market distress and related issues in the housing market."

TARP: It costs less than expected

Rather, what's shaping up is more of a semantic or accounting debate: Does the lower-than-expected cost of TARP open up resources to be used for jobs?

Supporters say yes. Many banks are repaying their TARP money. The most stunning example was announced last week: an imminent $45 billion repayment by Bank of America. That means the Treasury program will be adding less to the federal deficit, giving the nation financial options it wouldn't otherwise have.

Obama is expected to elaborate on this during a speech on the economy Tuesday.

Not a good idea, say the critics.

"Any decision to spend the so-called TARP "savings" must be considered fully by Congress and weighed against the enormous deficits facing the country," Stephen Ellis of Taxpayers for Common Sense said in a statement on Monday.

He says the projected deficits for the 2010 fiscal year are now almost as high as the record level of the 2009 fiscal year.

See also:

Bernanke speech: financial stability is returning

White House jobs summit: Eight ideas to aid job growth

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