Daschle nomination pulled over taxes

WASHINGTON -- Barack Obama on Tuesday abandoned his nomination fight for Tom Daschle and a second high-profile appointee who failed to pay all their taxes out of fears of ugly confirmation battles. "I screwed up," Obama said.

"It's important for this administration to send a message that there aren't two sets of rules -- you know, one for prominent people and one for ordinary folks who have to pay their taxes," Obama said in one of a series of interviews with TV anchors.

"I'm frustrated with myself, with our team. ... I'm here on television saying I screwed up," Obama said on NBC's "Nightly News with Brian Williams." He repeated virtually the same words in several other interviews.

Hours earlier, the White House announced Daschle had asked to be removed from consideration as health and human services secretary. Nancy Killefer made the same request concerning what was to be her appointment as a chief performance officer to make the government run better.

Daschle said in a brief letter to Obama that he refused to "be a distraction" from the new president's drive for health-care reform. Obama said neither he nor Daschle excused the former Senate Democratic leader's tax errors but that he accepted his friend's decision "with sadness and regret."

** FILE ** In this Jan. 7, 2009 file photo, Then-President-elect Barack Obama looks on as Nancy Killefer at his transition office in Washington. Killefer, who failed for a year and a half to pay employment taxes on household help, has withdrawn her candidacy to be the first chief performance officer for the federal government, an Obama administration official said Tuesday, Feb. 3, 2008. (AP Photo/Lawrence Jackson, File)

Personal tax problems had been piling up for the new administration. Last week, the Senate confirmed Timothy Geithner as treasury secretary, but only after days of controversy over the fact that the man who would oversee the Internal Revenue Service had only belatedly paid $34,000 in income taxes.

Bill Richardson bowed out, too, though his difficulties didn't involve personal taxes. The New Mexico governor, who was Obama's first choice for commerce secretary, withdrew amid a grand jury investigation into a state contract awarded to his political donors.

Questions about Daschle's failure to fully pay his taxes from 2005 through 2007 had been increasing since they came to light last Friday. Daschle overlooked taxes on income for consulting work and personal use of a car and driver, and also deducted more in charitable contributions than he should have. To resolve it, he paid $128,203 in back taxes and $11,964 in interest last month.

Daschle also was facing questions about potential conflicts of interest related to speaking fees he accepted from health-care interests and advice he gave to health insurers and hospitals through his work at a law firm.

Killefer, an executive with consulting giant McKinsey & Co., had been chosen by Obama to serve in two roles: as the first chief performance officer in a White House and as a deputy director at the Office of Management and Budget.

When Obama announced Killefer to much fanfare in early January, The Associated Press reported that the District of Columbia government had filed a $946.69 tax lien on her home in 2005 for failure to pay unemployment compensation tax on household help. She resolved the tax error five months after the lien was filed. Since then, administration officials had refused to say whether her tax problems extended beyond that one issue.

By Tuesday, the tax questions had reached critical mass.

"This is a self-induced injury that I'm angry about, and we're going to make sure we get it fixed," Obama said on ABC's "World News."

White House press secretary Robert Gibbs said the choice to step aside was Daschle's alone and that the former senator "did not get a signal" from the White House to do so. Daschle and Obama spoke Tuesday, and the president was surprised at the news, said White House senior adviser David Axelrod.

Democratic lawmakers were surprised, too -- and disappointed. Axelrod rushed to Capitol Hill to soothe frayed nerves.

"I was a little stunned. I thought he was going to get confirmed," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, the panel that would have voted on Daschle's nomination. "It's regrettable."

Obama, Vice President Joe Biden and Daschle's former Democratic colleagues had leapt to the former Democratic leader's defense. And it seemed that the clubby way that senators treat one of their own was likely to help Daschle survive the controversy.

But particularly after the divisive Geithner debate and vote, it apparently became too bitter a pill. Tax issues are easy for the public to understand, and also particularly easy to resent in wealthy officials at a time of widespread economic crisis.

They also created an opening for a drumbeat of criticism from Republicans and on newspaper editorial pages that Obama was engaging in a double standard: proclaiming his administration to be more ethical, responsible and special interest-free than his predecessors' and yet carving out exceptions almost daily.

GOP Sen. John Ensign of Nevada said Daschle was going to be faced with tough questions from committee members, among them how the wealth he amassed from a lobbying firm -- while not technically registered as a lobbyist -- "passes the smell test."

"I think he saved the president from being embarrassed next week in a public hearing," Ensign said.

But even while Obama aimed to stave off potentially crippling problems in one corner with the withdrawals, he created some new ones.

Obama has promised that moving toward universal health care coverage is one of the pillars of first 100 days agenda -- a heavy lift that many believed Daschle, with his long experience in Washington, was uniquely qualified for. Daschle was going to wear two hats for Obama, as White House health czar on top of the post leading the Health and Human Services Department.

"We're going to do health care reform," Senate Majority Leader Harry Reid, D-Nev., said flatly after the nomination withdrawal. But others reacted differently.

"It really sets us back a step," said Sen. Dick Durbin, D-Ill. "Because he was such a talent. I mean he understood Congress, serving in the House and Senate he certainly had the confidence of the president."

Among those considered for the post before it went to Daschle was Howard Dean, the physician-turned-politician who ran for president in 2004 and recently left as head of the Democratic National Committee. Other possible replacements include Kansas Gov. Kathleen Sebelius, Pennsylvania Gov. Ed Rendell, and Ohio Gov. Ted Strickland.

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Associated Press writers Michael J. Sniffen, Ron Fournier, Liz Sidoti, Charles Babington and David Espo contributed to this story.