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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.