Tax Problems Trip Up Administration Picks

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President Barack Obama suffered a big setback Tuesday when two of his nominees withdrew their names from consideration for top administration jobs. Tom Daschle, the former Senate majority leader, pulled his nomination to be secretary of Health and Human Services. Nancy Killefer withdrew her name from consideration as Mr. Obama's chief government performance officer.


It's MORNING EDITION from NPR News. I'm Steve Inskeep in Tehran.


And I'm Renee Montagne in Washington.

It was a bad day, yesterday, for the White House. Former Senator Tom Daschle was one of two nominees to withdraw from consideration for top administration jobs. He was up for the post of secretary of Health and Human Services and he was also set to lead efforts to overhaul the country's health care system.

In a moment we'll hear more about the outlook, now, for revamping health care. First, NPR's Don Gonyea reports on how yesterday's developments knocked the White House off balance.

DON GONYEA: The first piece of bad news for the White House came in the morning. Nancy Killefer, named to watchdog the performance and effectiveness of government programs, was pulling out over what's believed to be a relatively small problem with back taxes totaling less than $1,000.

Then, early yesterday afternoon, came the big blow: Daschle was stepping aside as a controversy grew over this week's revelations that the former Senate majority leader had paid more than $125,000 in back taxes. Mr. Obama was asked about it in a previously scheduled interview with ABC News. He said the decision was Daschle's.

President BARACK OBAMA: I think he made the assessment that it was going to be too much of a distraction. And the most important thing, from my perspective, is making sure that the American people understand we don't have two sets of rules here, that everybody has responsibilities.

GONYEA: The Daschle announcement was so stunning because there was every indication he'd be confirmed by the Senate. After all, he remains well liked there. But it wasn't just the size of his tax troubles, it was the symbolism, which involved free use of a limousine service in the years since he left the Senate in 2005.

That image clashed with the Obama administration's pledge to change the old Washington way of doing business, a point made in this old 1986 Daschle campaign ad. The ad, which surfaced on the Internet this week, shows Daschle at the wheels of a rusty, old Pontiac.

(Soundbite of ad)

Unidentified Man: But after 15 years and 238,000 miles, Tom Daschle still drives his old car to work every day. Maybe he's sentimental - or just cheap. Whatever the case, isn't it too bad the rest of Washington doesn't understand that a penny saved is a penny earned?

GONYEA: The ad and its sudden irony was one thing, Daschle's success since leaving Congress also came to symbolize the way former elected officials can earn huge paychecks consulting and giving speeches. Just as damaging was the fact that Daschle's confirmation hearing was still a full week away, with the final Senate vote likely another week after that. There was too much time for this story to percolate, so Daschle pulled the plug.

Losing two nominees in a single day, both due to delinquent taxes, was a major distraction for the administration. For better or worse, Mr. Obama had already been scheduled to do five back-to-back network TV interviews yesterday afternoon. Daschle became topic number one. The president didn't sugarcoat it. When asked by ABC's Charlie Gibson if it had been an embarrassing day, the president responded that it had.

Pres. OBAMA: And so this was a self-induced injury that I'm angry about.

GONYEA: The mea culpa continued over on Fox News.

Pres. OBAMA: I consider this a mistake on my part, and one that I intend to fix and correct.


Pres. OBAMA: I think I screwed up and I take responsibility for it.

GONYEA: Over at NBC.

Pres. OBAMA: Did I screw up in this situation? Absolutely, and I'm willing to take my lumps.


Pres. OBAMA: I was very eager to make sure that we can deliver on a commitment that I have to deliver health care for the American people. I think I messed up.

GONYEA: The president made the calculation that on this day, on this story, that the best approach was to emulate Harry Truman in saying that the buck stops with him. It is a switch from President Bush, who resisted any effort to get him to acknowledge a mistake. The question is how the American public will interpret this new candor.

In the meantime, the Obama administration wakes up today hoping that days like yesterday are extremely rare.

Don Gonyea, NPR News, the White House.

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Old Politics Crash Into Obama's New Standards

Nominations That Raised Ethics Questions

Health and Human Services Secretary: Tom Daschle, a former Senate majority leader, was under fire for failing to pay taxes on the personal use of a car and driver provided to him by a firm for which he was consulting. He recently filed amended tax returns and paid $128,203 in back taxes and $11,964 in interest owed. Daschle also faced questions about potential conflicts of interest related to speaking fees he had received from health care interests. He withdrew from consideration Tuesday.

Chief Performance Officer: Nancy Killefer, a former Treasury official, faced questions about nonpayment of unemployment taxes. The District of Columbia filed a $946.69 lien on Killefer's home in 2005 for failure to pay unemployment compensation taxes on her household help. She withdrew her candidacy to be the nation's first chief performance officer Tuesday, saying she did not want to distract from President Obama's "urgent" agenda.

Treasury Secretary: Timothy Geithner's personal tax lapses turned more than one-third of the Senate against him, but he did win confirmation Monday. He failed to pay all of his taxes on income received from the International Monetary Fund in 2001 and in three subsequent years. As Treasury secretary, he will direct the nation's economic recovery from the worst financial crisis in three generations.

Commerce Secretary: Sen. Judd Gregg (R-NH) was nominated Tuesday, but Obama earlier had considered New Mexico Gov. Bill Richardson for the post. Richardson withdrew in January amid a grand jury investigation into a state contract awarded to his political donors. Gregg, meanwhile, stirred his own controversy over a behind-the-scenes deal to ensure that New Hampshire's Democratic governor names a Republican to serve out Gregg's term.

Deputy Secretary of Defense: Two days after President Obama issued new ethics rules for top administration officials, his choice for this key position at the Defense Department came into question. William J. Lynn III, a former Pentagon official, was a registered lobbyist for a defense contractor within the past two years — which violates the new policy. But the Obama administration granted a special waiver, and Lynn's nomination is still in progress. Still, the nomination continues to raise objections from those who say it contradicts Obama's pledge to "close the revolving door that lets lobbyists come into the government freely."

From NPR and wire reports

In a way, it's like watching an interstate pile-up in slow motion.

One after another, several officials of President Barack Obama's nascent administration have gone into the ditch — or smashed into ethical realities — on their way to confirmation.

On Tuesday, Obama's choice for secretary of Health and Human Services, Tom Daschle, took his name out of consideration after his admission that he had not paid some $128,000 in income taxes sparked criticism. Daschle paid the bill and, as it turned out, an even dearer price.

Daschle's failure to pay taxes was compounded by the scrutiny he received for earning hundreds of thousands of dollars in consulting and speaking fees from health and pharmaceutical interests, some of which would be at the heart of any effort to overhaul the nation's health care system.

Also on Tuesday, Nancy Killefer withdrew her bid to be the nation's first chief performance officer because of her own bad performance: failing to pay employment taxes on domestic workers.

Perhaps Obama's early-days missteps are all the more surprising because he campaigned on the notion of cleaning up business-as-usual government.

"We must change Washington," Obama said in a speech delivered in Green Bay on Sept 22, 2008. "We must reform our regulations, our politics and our government, but we will not be able to make these changes with the same policies, the same lobbyists or the same Washington culture that allows politicians and special interests to set their own agenda."

Or perhaps we are seeing the results of Obama's promises to revamp Washington politics.

The New High Bar

"People are watching closely," says Mary Boyle of Common Cause, "especially on these kinds of ethics and lobbying issues that he highlighted during the campaign. That makes him especially vulnerable to be called hypocritical on this stuff, and that is certainly not how he wants to mark his first weeks in office."

But, Boyle adds, "he's also delivering on his promise to set a new bar. He issued an executive order on his first day on the job limiting the role that lobbyists could play in his administration. So what we seem to be seeing is the old way of business smacking up against the new high bar."

One nominee who is feeling the effects of Obama's new ethics standard through the confirmation process is his choice for deputy defense secretary. William J. Lynn III, a former Pentagon official, is a Raytheon executive and until recently, a former registered lobbyist for the defense contractor (sidebar). His confirmation is progressing, but not without objection over potential conflicts of interest.

Daschle and Killefer joined the parade of doomed or difficult nominations. Newly installed Treasury Secretary Timothy Geithner also owed some $34,000 in back income taxes — a fairly significant oversight for the man in charge of the Internal Revenue Service. But his nomination, amid the hopes that he might help revive the economy, was perhaps considered too big too fail. He ponied up the money and was confirmed — but only by a 60-34 vote.

Still, another Obama pick, New Mexico Gov. Bill Richardson, backed out of his nomination as secretary of commerce because of questions over political donors who received state contracts.

Birthing Pains

Obama is not the first president to suffer such birthing pains. "Most administrations have some problems with initial confirmations," says Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. President Clinton's first two choices for attorney general, Zoe Baird and Kimba Wood, withdrew, and President Bush's first labor secretary nominee, Linda Chavez, was forced to take her hat out of the ring. All three were derailed by nanny issues.

In Washington, the question is being asked: Can Obama find enough smart, committed and squeaky-clean civil servants to fill the top spots in his White House? There could be a domino effect at work. Daschle might have survived if Killefer and Richardson had not fallen before him. And if Geithner's appointment hadn't already used up a pile of Obama's political capital.

"Nearly everyone has a skeleton or two," Sloan says, "and demanding purity from our government officials will leave us disappointed and with no officials. That said, it is well-known in Washington that tax problems will sink a nomination. Anyone aspiring to high-level government service has long been on notice that they need to keep their financial house in order."

Under the klieg lights of the administration's background investigations, more eleventh-hour surprises are liable to emerge. Which also puts the vetting process itself under a spotlight all its own.

Material from The Associated Press was used in this report.



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