* Jack Lew expected to eventually 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 fended off criticism about his financial experience and tried to find common ground on tax reform with lawmakers considering his nomination.
Republicans on the Senate Finance Committee blasted Lew with questions about his investment in a fund linked to the Cayman Islands and his work at Citigroup, especially a $940,000 bonus he received just before the bank got a taxpayer-funded bailout.
Lew, sounding calm and confident, responded that he was aware of Citigroup's financial difficulties, but that his compensation was in line with others who worked in the financial industry.
His background at Citigroup aside, the hearing underscored differences between Democrats and Republicans on U.S. budget policy. Lew struck a conciliatory stance, repeatedly saying he looked forward to working with Congress on a bipartisan basis, and the questioning was largely respectful and free of drama.
Most Republicans have withheld judgment on Lew's nomination and, with Democrats controlling the Senate 53-45, Lew is widely expected to win confirmation this month.
The top Republican on the Senate Finance Committee, Orrin 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 units at Citigroup, one of which engaged in proprietary trading. As treasury secretary, Lew would be responsible for overseeing rules that seek to prevent such trading as the chairman of a group of top U.S. financial regulators.
"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 he did not have any conflicts of interest for the job. While at Citigroup, he said he was mainly in charge of managing the bank's 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. Obama criticized such offshore accounts when he campaigned for re-election last year.
"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," he 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 questioning.
Lew said tax reform should be a priority, especially lowering the 35 percent corporate tax rate to make the United States more competitive.
But he said he had learned tax reform was not an easy task when he was involved in tax negotiations in the 1980s.
"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.
It was unclear whether Lew's previously admitted lack of experience in financial markets would prove a hurdle in his efforts to garner support among senators.
The treasury secretary chairs the Financial Stability Oversight Council, a panel of regulators that is close to imposing additional rules on a handful of large, complex financial institutions meant to ensure they do not threaten the stability of the financial system.
Lew also 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.
Lew served as a deputy secretary of state under Hillary Clinton, but his main responsibility there was managing the State Department's resources.
His real passion is for budgets. He worked as the White House budget chief twice, first under President Bill Clinton.
"Budgets aren't books of numbers. They're a tapestry, the fabric, of what we believe," he told Congress in 2010.
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.
If confirmed, he would take the helm at Treasury as the White House heads into another round of difficult talks with Congress on how to put the nation on a sound fiscal footing.