Treasury-secretary nominee Jack Lew was in the hot seat in front of the Senate Finance Committee Wednesday and made his case that he is qualified to be one of the nation’s top policy makers.
As former White House chief of staff, Lew’s ability to work with the president didn’t come into play, nor will his knowledge of the country’s budgetary issues, since he served as director of the Office of Management and Budget under President Bill Clinton. But despite his experience on Pennsylvania Avenue, Lew still faces a tough environment as lawmakers race to reduce spending and raise the $16.4 trillion debt ceiling.
For more than three hours, Lew answered questions regarding the country’s financial position, his personal investments, the banking sector and his international economic diplomacy skills.
Senate Finance Committee Chairman Max Baucus cited the importance of comprehensive tax reform in his opening remarks, and added that he hopes Lew will address his concerns about the administration "being distracted from what should be the main focus -- job creation."
Top-ranking committee Republican Sen. Orrin Hatch followed up Baucus's remarks by saying the role of Treasury secretary goes beyond the budget and also includes the implementation of Dodd-Frank, debt management, tax collection, oversight of economic sanctions and oversight of the value of the U.S. dollar.
Hatch also cited a potential "awkward situation" over Lew's support of the Volcker Rule, which divides investment banking, private equity and hedge fund businesses of a bank from the more tractional lending side of banks. Lew served as managing director and chief operating officer of Citi Global Wealth Management, and oversaw departments that engaged in activities that the Volcker rule is meant to prevent. Hatch said this would like Lew saying "do as I say, not as I did."
In his opening remarks, Lew, 57, said the nation needs to get back on a path of fiscal sustainability. “Over the past two years, we have locked in $2.5 trillion in deficit reduction through spending cuts and revenue increases. And we can do even more to shrink the deficit over the next decade through a balanced mix of spending reductions and tax reforms, and sensible reforms to Medicare that will help the program stay sound in the future.”
The day after the president called for tax reform in his State of the Union address, senators wanted to know the best way to implement such changes.
Democratic Senator Deborah Stabenow asked how to reform taxes to encourage manufacturing in America, and Lew replied that if business tax reform is on the table, the goal should be to simplify.
"We ought to have a preference for manufacturing in the tax code. Broader base and lower rate makes manufacturing investment more attractive but must be bipartisan since each particular incentive has support."
He also said that corporate tax reform can be done in a revenue-neutral way. " The best would be to do both business and individual tax reform. It would be challenging to get the top corporate rate down to 25%. We should be looking at a minimum worldwide rate."
Lew told the committee that the economy is on the mend, but more needs to be done for private sector job creation and to ignite economic growth. “That means making it easier to sell American-made goods abroad and expand manufacturing in the United States. It means working with our partners around the globe and through organizations like the G-20 to bolster the international financial system and promote global economic stability.”
With the clock ticking to March 1 when the automatic spending cuts go into effect unless Congress raises the debt ceiling or raises more revenue, many lawmakers asked for Lew to weigh in on the consequences of a sequestration and the best way to increase revenue.
Lew said the sequester can't just be rearranged and that it was never meant to go into effect.
Lew's experience on Wall Street is also a hot topic, especially the $940,000 bonus he received in January 2009.
Hatch fired off several questions about Lew's time at the bailed-out bank and Sen. Chuck Grassley asked about receiving a bonus as the company was getting taxpayer money. "Explain why it might be morally acceptable to take close to a million dollars out of a company that was functionally insolvent and about to receive a billion dollars of taxpayers' support," the senator asked.
"I was an employee in the private sector, I was compensated in a manner consistent with other people who did the kind of work that I did in the industry and I was compensated for my work. I'll leave for others to judge," Lew responded.
In the second round of questing, Hatch circled back to the bonus issue, saying Lew's reasoning sounded like a "gee, well everybody else is doing it" excuse.
"The experience I had in the private sector has given me perspective that I believe enhances my ability to perform," Lew said. "As far as my 2008 compensation goes it was for my performance in 2008.There hasn't been anything that hasn't been fully transparent." He also disclosed his salary before the bonus was $350,000 a year.
Lew, who entered the Washington scene in 1973 as a legislative aid, defended his decision to invest in a fund that was registered in the Cayman Islands and said he was not involved in setting it up.
"At the time I invested I was aware it was an international fund investing in emerging markets. I knew that much of the personnel for the fund was based in London. I actually didn't know at the time what the address of the partnership was."
While lawmakers asked drawn-out questions and often cited the economic instability, T. Doug Dale, chief investment officer of Security Ballew Wealth Management, said it doesn't matter who fills the post if the right problems aren't being addressed.
"The individual taking that role is going to face real challenges," he says. "We aren't even talking about fixing the real problems facing the economy because and so few actually understand what is going on."