Daschle Withdraws Nomination

Former Senate Majority leader Tom Daschle withdrew his nomination to be secretary of Health and Human Services Tuesday - a move President Obama said he accepted  "with sadness and

Wrote Daschle in a statement: “I have just informed the President that I am withdrawing my name from consideration for Secretary of Health and Human Services….If 30 years of exposure to the challenges inherent in our system has taught me anything, it has taught me that this work will require a leader who can operate with the full faith of Congress and the American people, and without distraction. Right now, I am not that leader, and will not be a distraction.”

The distraction was the mounting furor over Daschle's failure to pay over $100,000 in taxes - a controversy that threatened to become a permanent blot on Obama's promise to clean up Washington's ethical quaqmire. The White House appeared to have the votes to confirm Daschle in the Senate- but seems to have made the judgment that there were larger forces at play, forces that could bring long-term harm to the young administration.

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.

On MSNBC, Andrea Mitchell said she had just spoken with Daschle - who said that when he read the New York Times this morning, he realized he could never pass health care reform if he was such a distraction.

Some of Daschle's former Senate colleagues were devastated by the news. I"t's a big loss for the country," said Sen. Kent Conrad (D-ND.). Conrad called Daschle "one of the most honest men" he had ever known, but said it was a case where "the story never caught up with headlines."

"I think it"s a tragedy," said a visibly irate Conrad. 

On MSNBC, Sen. Jim DeMint (R-S.C.), who had called on Obama to withdraw Daschle’s nomination, voiced another view.  “The American people were really mad about it, because we’re paying taxes on a lot less income," he said "

The Daschle bombshell came amid news that  taxes had sunk another Obama appointee, a development that clearly also played a role in the Daschle endgame.

Nancy Killefer, who was slated to be the White House’s first chief performance officer, withdrew her nomination Tuesday, saying in a letter to Obama 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.

Killefer and Daschle's problems came after Treasury Secretary Timothy Geihner had encountered similar problems. Geithner also paid $42,000 in back taxes and penalties.

“Said a Senate source of Killefer: "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.”

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.

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.

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