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February 12, 2013 6:36 pm
Jack Lew will face tough questions at his confirmation hearing for Treasury secretary on his compensation and tenure at Citigroup and a $56,000 investment held in a Cayman Islands fund during that time, Republican senators say.
Although Republicans are not expected to block Mr Lew’s appointment to succeed Tim Geithner at the helm of the Treasury department, his appearance on Wednesday before lawmakers could still be fraught with tension and some harsh scrutiny.
Republican senators have narrowed their sharpest attacks to Mr Lew’s short stint at Citigroup between 2006 and 2009, when he held senior roles in the wealth management and alternative asset units of the bank at the height of the financial crisis.
Most of Mr Lew’s career was spent in government, first as a Democratic congressional aide, then in the Clinton administration as budget director. He is currently White House chief of staff.
In selecting him for Treasury, administration officials have highlighted his time at Citigroup as evidence that he has some knowledge and expertise in the private sector and financial markets to allay concerns that he lacked depth in dealing with Wall Street.
But his time at Citigroup – which was ultimately bailed out by the US government – has also emerged as a vulnerability ahead of Wednesday’s hearing.
Part of the grilling from Republican senators will be dedicated to his role at the company during the financial crash, as well as his compensation, including a $940,000 bonus he received in early 2009.
“If taxpayers are going to prop up failed banks, they have a right to know what a key executive like Mr Lew did at that time,” said Orrin Hatch, the Utah senator and top Republican on the finance committee, which will oversee the confirmation.
But also under the spotlight will be a $56,000 investment in a Citigroup fund housed in the Cayman Islands that Republicans see as deeply hypocritical given the attacks by President Barack Obama’s re-election campaign on the offshore accounts held by Mitt Romney, his Republican opponent.
Chuck Grassley, a Republican senator from Iowa, said the “irony is thick.”
“Is it a problem for him being confirmed? Probably not. But it should be a problem for the president who hammered Romney for his foreign investments and then picked someone as Treasury secretary who did exactly the same thing,” Mr Grassley told the Financial Times.
Mr Lew divested the investment for a small loss in 2010 when he was picked to be Mr Obama’s budget director. A White House official said this information did not disqualify him during Mr Lew’s previous confirmation hearings under Mr Obama.
“Jack Lew paid all of his taxes and reported all of the income, gains and losses from the investment on his tax returns. The existence of Mr Lew’s investment is not news to the Senate,” a White House spokesman said.
Allies of Mr Lew have pointed to double standards on the Republican side, since Mr Grassley and Mr Hatch supported Hank Paulson as George W. Bush’s Treasury secretary, despite the former Goldman Sachs chief’s ample portfolio of Cayman Islands investments. With regard to the Citigroup bailout, a Treasury official also noted that the US government had exited its investment in the bank at a profit for taxpayers.
The tussle over Mr Lew’s Cayman Islands fund comes as Democrats are proposing to eliminate some tax loopholes and deductions in order to find new savings to replace $1.2tn in automatic spending cuts over a decade due to take effect next month.
Carl Levin, a Democratic senator from Michigan, introduced legislation this week that would generate nearly $200bn in new revenue over 10 years by cracking down on such practices as “transfer pricing” – or the shifting by US multinationals of intellectual property profits overseas for tax purposes – as well as the preferential tax treatment of carried interest, or private equity and hedge fund profits.
But Republicans say higher taxes should not be part of any deal to replace the sequestration, and loopholes should only be curbed in broader tax reform.
“This legislation elevates the issue that our tax rates are too high and our code is too complicated, and as a result people want to keep their money elsewhere,” said Mr Hatch.
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