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Tax Problems Fell OMB Official

Failure to pay taxes will fell at least one of President Obama’s appointees.

Nancy Killefer, who was slated to be the White House’s first chief performance officer, withdrew her nomination Tuesday, saying in a letter to the president that her tax delinquency would cause political hardships.

Killefer, in a five-sentence letter released by the White House, said she had “come to realize in the current environment that my personal tax issue of D.C. Unemployment tax could be used to create exactly the kind of distraction and delay those duties must avoid.”

The former McKinsey consultant faced a nearly $950 lien in 2005 on her Washington, D.C. home after not paying taxes for a year and a half on household help.

The lien was disclosed when Killefer was appointed in early January to a new OMB position aimed at streamlining government and rooting out waste and inefficiency.

But that was before revelations that two other more high-profile Obama appointees had failed to pay thousands in taxes, Treasury Secretary Timothy Geithner and Health and Human Services Secretary-designate Tom Daschle 

Daschle admitted failing to pay $100,000 in back taxes on a free limo service provided by a Democratic donor. Geithner also paid $42,000 in back taxes and penalties.

Now, with Geithner having survived what was largely a party-line confirmation vote and Daschle battling to keep his nomination alive, White House officials seemed to have decided that they could not have a third prominent official in the administration who failed to pay taxes.

“She has nanny tax problems that may not have been insurmountable on their own, but given the Geithner and Daschle cumulative effect, she had to withdraw” said a Senate source informed of the withdrawal.

Obama aides didn’t immediately answer a barrage of questions from reporters about Killefer, the most pressing of which was: how did her appointment go through in the first place and did she disclose her lien upon being tapped?

The questionnaire Obama made all nominees fill out is explicit on the matter, asking them if taxes and Social Security obligations were paid on household help.

The “current environment,’ as Killefer put it in her letter, poses political danger to Obama. The new president ran and won as a reform candidate, promising a new brand of politics. The day after being sworn in, he immediately put in place what he touted as far-reaching ethical reforms. But Obama quickly granted exceptions to his purportedly hard-line ban on lobbyists serving in his administration and is now offering explanations as to why it is acceptable for two of his top cabinet officers to serve despite failing to pay taxes.

These issues threaten to divert Obama from his focus on rejuvenating the economy and are prompting questions from otherwise political allies on his commitment to changing the political culture of the capital. Obama is not just getting flak from predictable political opponents: the Daschle nomination was savaged Tuesday morning by the New York Times editorial page and has also been criticized by the Nation magazine, a touchstone of Democratic liberalism.

Obama ignored a shouted question Monday morning from CNN’s Ed Henry after a White House ceremony announcing the selection of Sen. Judd Gregg as Commerce Secretary as to why so many administration appointees are having tax troubles.

Killefer's nomination was slated to go through the Senate Homeland Security and Governmental Affairs Committee, which is chaired by Sen. Joe Lieberman (I-Conn.).

"Sen. Lieberman is disappointed the nomination process for this important position has been delayed," said Leslie Phillips, a spokeswoman for the panel. "He hopes the Obama administration quickly appoints a new nominee so the critical business of making government more efficient and responsive to the American people can be carried out with energy and vigo." 

Carol E. Lee and Manu Raju contributed to this story.