Tax and Consulting Woes Sink Daschle

After several days of fighting to keep his nomination on track to head the Health & Human Services Dept. and be President Barack Obama's health-care czar, former Senator Tom Daschle (D-S.D.) withdrew his name from consideration early Tuesday afternoon because of controversy over back taxes and money earned in recent years as a speaker and consultant.

Daschle, the former Senate leader, in a statement, said his selection for the health post had been "one of the signal honors of an improbable career." Still, he said, the job requires "a leader who can operate with the full faith of Congress and the American people, and without distraction." Added Daschle: "Right now, I am not that leader."

In a statement, Obama noted that Daschle has "devoted his life to public service and health-care reform" but that "Tom made a mistake, which he has openly acknowledged. He has not excused it, nor do I. But that mistake, and this decision, cannot diminish the many contributions Tom has made to this country."

No Push from the White House

Robert Gibbs, Obama's press spokesman, insisted at a press briefing that the decision to withdraw was Daschle's and there was no signal from the White House. Obama had stuck with Daschle for days despite the simmering storm over taxes and the former senator's lucrative speaking and consulting fees.

Tax problems are turning into a recurring theme with the new Obama Administration. Daschle's withdrawal came just hours after Nancy Killefer, Obama's nominee to be the government's first "chief performance officer," withdrew her name for the post after it was learned that the District of Columbia had filed a lien on her home for $946.69 for failure to pay unemployment compensation for household help. The bill included $298 in unpaid taxes, as well as $600 in penalties and $48.69 in interest.

In a letter to Obama released on Tuesday by the White House, Killefer said: "I have also 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 [of chief performance officer] must avoid. Because of this I must reluctantly ask you to withdraw my name from consideration."

Previously, Timothy Geithner's nomination as Treasury Secretary was slowed by income tax issues, though they ultimately did not derail his confirmation.

Killefer's resignation over a much smaller unpaid tax bill increased the pressure on Daschle to step away from the post; after all, if Killefer didn't feel she could operate effectively because she hadn't paid less than $300, how could Daschle continue without an issue given that he owed some $128,000 in in unpaid taxes?

Potential Political Damage

Both Daschle and Killefer ran smack into a harsh reality: For an Administration that came to power promising to rid Washington of the revolving door, and which has promised the strictest ethics rules of any recent Administration, the image of three prominent appointees running into problems with unpaid back taxes became too politically damaging.

"It's hurting him that his administration is not looking as ethically pure as advertised," says Greg Valliere, Chief Political Strategist for institutional broker the Stanford Group Cos. "The Administration has to turn around the perception that they are the same as everyone else, that they are not all that different from previous administrations." That, on top of the fact that "the Democrats are also solidifying their reputation as profligate spenders" by shoving too many pet projects into the stimulus bill was starting to reflect poorly on the Democrats and on Obama, he adds. "They had to stop the bleeding right away or things really could have spun out of control."

For Daschle, the image problem threatened to go well beyond the money owed to Uncle Sam. Questions were increasingly being raised about the type of work he had done for his law firm and his private clients—including the private equity firm that provided a car and driver to him—in the years after he lost his Senate post.

Although Daschle was never a registered lobbyist—and like most professional persuaders in Washington was under no legal obligation to do so unless he planned on directly lobbying Congress—he earned more than $5.2 million over the past two years as a "strategic adviser" to health insurers and hospitals, and worked in other industries such as energy and telecommunications, according to a financial statement filed with the Office of Government Ethics.

The manner in which he earned his living during those years increasingly looked like exactly the types of activities that Obama had railed against during the campaign, and keeping him on raised questions as to how serious Obama was about his ethics pledge. With the perception growing that Obama was all too quick to make an exception to his strict standards when it was in his interests, the third tax problem became the charm. Whether they jumped on their own or got subtle hints that it was time to go, it became clear that the Administration needed to cut its losses.

The Associated Press contributed to this report.

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