Mr. Froman also received millions of dollars to divest himself from Wall Street investments that rely on a tax loophole that Mr. Obama has sought to close, the documents show.
A White House spokesman, Bobby Whithorne, said Mr. Froman did not receive a benefit from that loophole, known as “carried interest.”
Republicans on the Finance Committee, however, said they planned to accuse Mr. Obama of hypocrisy for making the elimination of such tax loopholes a centerpiece of his re-election campaign while promoting Mr. Froman for the position of United States trade representative.
“When he was first elected, the president said tax avoidance through international tax havens forced ordinary Americans to ‘pick up the slack,’ ” said Senator Charles E. Grassley, Republican of Iowa and a Finance Committee member. “He railed against fat cats who avoid taxes offshore.”
Mr. Grassley linked Mr. Froman’s financial issues with matters that arose during Treasury Secretary Jacob J. Lew’s confirmation this year and have also drawn questions for his nominee for commerce secretary, the affluent businesswoman Penny Pritzker.
White House officials said Mr. Froman played no role in creating, managing or operating the investment funds and had done nothing wrong.
“Mike Froman has paid every penny of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” Mr. Whithorne said.
Mr. Froman, 50, a former investment manager at Citigroup, has been with the Obama White House since the beginning, serving as the president’s representative and negotiator at major economic gatherings like the summit meetings of the Group of 20 industrialized nations.
According to a 2011 financial document, Mr. Froman held $490,845 in a fund managed by Citigroup and based in Grand Cayman’s Ugland House, a modest whitewashed building that has been widely cited as a symbol of tax avoidance since it is home to nearly 19,000 business entities seeking favorable tax treatment.
In answers to Finance Committee questions, Mr. Froman said on May 17 that he still held those assets but would sell them off within 90 days of confirmation as trade representative.
Mr. Grassley said the president once called the Ugland House “the biggest tax scam in the world.”
“Yet he nominated two top advisers in a row who invested in the Ugland House,” Mr. Grassley said. “He also nominated a commerce secretary with significant offshore income.”
Mr. Froman’s 2009 financial disclosure forms showed holdings in three different Citigroup accounts that maximize profits through “carried interest,” a tax loophole that allows private equity and hedge fund managers to claim compensation as capital gains, thus paying a lower tax rate than if that pay is taxed as income.
Mr. Froman received a $2 million payout from Citigroup to waive his holdings in the India Infrastructure Carried Interest Plan and from another investment called the Sustainable Investments Carry LP. Another account, Citi Infrastructure Investors Carried LP, showed $1 million to $5 million in assets in 2009. Those assets were transferred to his wife, Nancy Goodman, who has promised to divest them as soon as he is confirmed. But White House officials say their value in his latest financial disclosure was revised to zero because of fund performance.
As the financial industry went into a tailspin, Mr. Froman received a bonus in 2008 of $2.75 million, based on his performance the year before. In 2009, his bonus for 2008 work was $2.25 million. The justification for these bonuses given to the committee was “normal industry practice.”
White House officials acknowledged the compensation Mr. Froman received to divest himself of accounts under the terms of his severance agreement with Citigroup. But, they said, that compensation was taxed as ordinary income, not capital gains.
The Obama White House has been trying to close the carried interest loophole since its first budget proposal in 2009, asking Congress to begin taxing such payments as ordinary income. So far, Congress has refused.
It is not clear whether Mr. Froman’s holdings will damage his chance at confirmation. But they could put Democrats in an difficult position. Senator Sherrod Brown, Democrat of Ohio and an economic populist, said he already was prepared to ask Mr. Froman tough questions about administration trade policies he does not like, especially efforts to expand trade agreements around the Pacific Rim.
Senator Max Baucus, Democrat of Montana, the Finance Committee chairman, was less than effusive in his defense of Mr. Froman.
“Frankly it doesn’t bother me in the sense that he apparently didn’t break any laws anywhere, but it does highlight the need for tax reform,” he said
Original Article
Source: nytimes.com
Author: JONATHAN WEISMAN
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