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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.

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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.

Kevin Lamarque/Reuters

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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.

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.

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