* Obama’s candidate expected to win Senate backing
* Lew: Citigroup bonus was in line with others in industry
* Tax reform a focus; Lew shows appetite to tackle it
By Anna Yukhananov and Rachelle Younglai
WASHINGTON, Feb 13 (Reuters) – Jack Lew, President Barack
Obama’s pick to be U.S. treasury secretary, on Wednesday defused
heated questions from lawmakers about his work at Citigroup and
managed to find common ground with critics over the need for tax
reform.
At a hearing on his nomination, Republicans blasted Lew with
questions about his investment in a fund linked to the Cayman
Islands and his time at Citigroup, especially a $940,000 bonus
he received just before the bank got a taxpayer-funded bailout.
Lew, sounding calm and confident, told the Senate Finance
Committee that his compensation at Citigroup was in line with
others who worked in the financial industry.
His background at the bank aside, the hearing underscored
differences between Democrats and Republicans on how best to
rein in U.S. budget deficits but also highlighted a common
desire to reform the tax code. Lew struck a conciliatory stance,
repeatedly saying he looked forward to working with Congress on
a bipartisan basis.
He said revamping the tax code would be “at the very top” of
his priorities.
The questioning was largely respectful and free of drama.
Even the top Republican on the committee, Orrin Hatch, one of
Lew’s most persistent critics, had only nice things to say at
the end of the 3-1/2-hour vetting.
“Frankly, I think you’ve done really well,” he told Lew.
The smooth performance further cemented Lew’s prospect of
winning the Senate’s needed backing. While most Republicans have
withheld judgment, Democrats control the Senate 53-45.
CITI STINT
During the hearing, Hatch zeroed in on Lew’s work as an
executive at Citigroup as a possible conflict of interest for a
job that would have him overseeing financial markets.
Hatch said he was unclear about what Lew did as chief
operating officer at two Citigroup units, one of which engaged
in proprietary trading. As treasury chief, Lew would oversee
rules that seek to prevent such trading.
“If you were to be confirmed, it could lead to an awkward
situation in which … you would effectively be saying to
financial firms: Do as I say, not as I did,” Hatch told Lew.
Lew said there were no conflicts of interest. While at
Citigroup, he said he was mainly in charge of managing an
operating budget and was not involved in investment decisions.
Lew was also grilled about a $56,000 investment he once had
in a Citigroup venture capital fund registered in the Cayman
Islands. Republican Senator Pat Roberts briefly displayed a
blown-up picture of Ugland House, a Cayman Island office
building where thousands of companies registered, including the
fund in which Lew invested.
Obama has criticized the use of offshore tax havens and had
singled out Ugland House in his first election campaign.
“There’s a certain hypocrisy in what the president says
about other taxpayers, and your appointment,” Republican Senator
Chuck Grassley said during the hearing.
Lew told the panel he did not initially know his investment
was registered in the Cayman Islands. He said he did not receive
any tax benefit from the investment, as he sold it at a loss.
“I think it’s clear I recorded all income that I earned. I
paid all taxes as appropriate,” Lew said. “I very strongly
believe that we should have tax policies that make it difficult
if not impossible to shelter income from taxation.”
HARD TAX CHOICES
The need to reform the tax system, which has not had an
overhaul since 1986, was a central focus of the hearing, with
much of the questioning centering on the corporate tax code.
Obama has proposed cutting the top corporate rate to 28
percent from 35 percent. Republicans want it dropped to 25
percent.
“As a general rule, if there were a lot of easy decisions on
tax reform, it would have happened a long time ago,” Lew said.
“There are going to be hard choices.”
A 57-year-old New Yorker who until recently was White House
chief of staff, Lew is a budget wonk who has spent much of his
career in public service in Washington.
Lew’s lack of financial markets experience has worried some
business executives. But during the hearing, the former budget
chief was able to answer fairly detailed questions on credit
derivatives and financial regulation.
The nominee also pledged fealty to the long-standing U.S.
policy view that a strong dollar is in the nation’s interest and
repeated the administration’s position that China’s currency
remains undervalued, signaling an intent to keep pressing
Beijing to let market forces more freely determine its value.
“We work through the international bodies, the G7, the G20,
to advance the view that it’s not just the United States, but
the organized nations of the world that insist on having
currency policies which are market-determined,” he said.
Lew lacks the international stature of his predecessor,
Timothy Geithner, who had met regulators from around the world
as president of the New York Federal Reserve Bank and was a
senior financial diplomat in a prior stint at the U.S. Treasury.
But Lew said he met plenty of foreign dignitaries while
serving as a deputy secretary of state under Hillary Clinton,
where his main responsibility was managing the State
Department’s resources. He also met with top leaders while at
the White House as chief of staff, he told lawmakers.
Lew’s real passion is for budgets. He worked as the White
House budget chief twice, first under President Bill Clinton.
Analysts said the choice of Lew as the administration’s top
economic official signals the importance Obama places on ongoing
battles in Washington over the government’s budget.
Senator Max Baucus, the chair of the Finance Committee, said
he expects to hold a vote on Lew’s nomination after Congress
returns from a week-long break in late February. Lew would then
have to be confirmed by the full Senate.
That would come as the White House and Congress near a March
1 deadline to deal with $85 billion in automatic budget cuts
that Lew said would impose “self-inflicted wounds” to the U.S.
economic recovery.
At the end of the hearing, Baucus and others repeatedly
questioned if Lew had sufficient gravitas to be the chief U.S.
economic spokesman.
“On the things I believe, I’ve never withheld my judgment,”
Lew said. “But the thing I would say that’s different about
Treasury is it is a job that requires you to transcend politics
… I understand that.”
