Obama Says He Erred in Nominations (Daschle and Another Pick Withdraw Over Tax Problems)

By Anne E. Kornblut and Michael D. Shear
Washington Post Staff Writers
Wednesday, February 4, 2009; Page A01

President Obama acknowledged yesterday that he had "made a mistake" in trying to exempt some candidates for positions in his administration from strict ethics standards and accepted the withdrawal of two top nominees, including former Senate majority leader Thomas A. Daschle, in the first major setback of his young presidency.

Obama officials had sought a seamless transition, nominating most of his Cabinet at record pace and taking office ready to implement a raft of new policies. His reversal yesterday suggested that speed may have come at a cost, and that Obama, despite the overwhelming popularity he had upon taking office and the major challenges facing the nation, will not be spared from the same kind of scrutiny his predecessors have faced.

In jettisoning one of his closest and earliest political allies, the president appeared eager to make a course correction after days of criticism that his administration was not abiding by its own stated ethical standards and questions about his ability to bring change to the capital.

"Did I screw up in this situation? Absolutely. I'm willing to take my lumps," Obama told NBC's Brian Williams, one of five interviews he gave yesterday afternoon. Obama told the network anchors that there are "not two sets of rules" for people, and said that average taxpayers deserve to have public officials who pay their taxes on time.

Daschle's exit from consideration to lead the Department of Health and Human Services after a firestorm over his failure to pay $146,000 in taxes on time came as a shock to the president's supporters in Washington. Just a day earlier, Obama had pledged his full support for the former Democratic Senate leader who was widely expected to be confirmed. And just hours before Daschle bowed out, Nancy Killefer, Obama's nominee for the newly created position of chief performance officer, also stepped aside because of a tax problem.

Daschle's withdrawal came as a jolt to the administration, serving as a rebuke to Obama officials who had privately and publicly brushed aside the idea that personal tax issues would reach a boiling point. Senior officials had insisted that the public was too concerned with the ongoing economic collapse to fixate on the foibles of the people being marshaled to try and set the nation back on course.

And perhaps most significant, the move threatened Obama's plans to overhaul the health-care system, a central policy initiative and one so important that he had chosen Daschle for a perch both at the Department of Health and Human Services and in the White House itself. Daschle withdrew from consideration for both posts yesterday, and advisers said they did not know whether the next nominee would serve in dual roles, a measure of the disarray the controversy had caused.

Daschle disclosed the decision in a joint statement with Obama, acknowledging that questions about his tax lapses had become "a distraction." "I will not be the architect of America's health system reform, but I remain one of its most fervent supporters," he said.

Obama, in that statement, described Daschle's tax problems as a "mistake" that he did not excuse. But the administration did not fully explain the sudden decision, which came only after media scrutiny and threats from some Republicans that Daschle would face a difficult confirmation process.

Daschle's exit came just hours after Killefer announced her withdrawal amid questions about a $967 tax lien that was placed on her Washington home in 2005 after she did not pay unemployment compensation taxes on household help. Both events upstaged the president's formal announcement of his choice of Sen. Judd Gregg (R-N.H.) as commerce secretary -- and a visit that Obama and the first lady made to read to students at a District charter school.

The administration had initially ignored criticism of Daschle after the disclosure last Friday that he had not paid taxes on a car and driver that a private equity firm had made available to him. As recently as Monday, it still appeared that he would be confirmed by the Senate, where he still had the near-unanimous loyalty of his former Democratic colleagues.

Key lawmakers were also caught off guard by the reversal. Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, who offered Daschle his firm support after a 75-minute meeting on Monday, said he was told just 15 minutes before the news broke. "The tone was almost collegial, it was not acrimonious," Baucus said of the committee meeting, during which senators spent an hour reviewing the report on Daschle's finances and then met with him behind closed doors. "Based on that meeting, I'm a little surprised by Senator Daschle's decision," he said.

Daschle informed Obama of his decision in a phone call yesterday morning, White House officials said.

Sen. Olympia J. Snowe (Maine), a key Republican on the finance panel, said she went home Monday night expecting the confirmation process to go forward and Daschle to be sworn in as the new health secretary. "I thought the process was underway," she said. "All indications were that this was going forward."

Gregory B. Craig, the White House counsel, declined to say whether the latest upheaval would prompt the White House to revisit its rules relating to senior officials coming from the private sector into the administration. Although Daschle was not a registered lobbyist, he represented health-care clients for his law firm and he received more than $250,000 in income from paid speeches and advice given to corporations in the health-care sector.

Before Daschle's decision was announced, a growing number of Senate Republicans began speaking out against his nomination. After holding back criticism for almost four days, some Republicans broke their silence after learning that Killefer was withdrawing her nomination because of what appeared to be a much smaller tax dispute.

"He didn't really have a choice," Sen. John Cornyn (R-Tex.) said, after calling for Daschle to step aside earlier in the day.

Cornyn, chairman of the GOP campaign committee, said the controversy had become "Geithner on steroids," referring to the $43,000 in back taxes new Treasury Secretary Timothy F. Geithner paid before his confirmation vote.
The situation also raised questions about how thoroughly Obama transition officials had vetted their Cabinet nominees.

Officials said yesterday that myriad tax questions had been posed to Daschle, Killefer and Geithner. But the problems were largely dismissed as less important than the nominees' qualifications for the major tasks they were expected to confront in office, the officials said.
One person familiar with the appointment process said Obama and his top advisers were concerned about the possibility of political "combustion" occurring over the tax issues. "People were not unaware that might happen," the official said. But they believed that Geithner and Daschle were uniquely qualified.

"We knew he'd get punched around on this, and that he had made a painful mistake," John D. Podesta, who co-chaired Obama's transition team, said of Daschle. "But we believed he could be confirmed and that he was -- and I still believe this -- the right guy for the job of leading the department and finally getting health-care reform across the finish line."

As he assembled his administration, Obama conducted the vetting process methodically and required unprecedented scrutiny of candidates' personal, financial and professional backgrounds.
Potential picks had to answer 63-item questionnaires, which an army of lawyers, many of them volunteers, then scoured. Nine of the questions were about taxes. No. 37 asked whether "a tax lien or other collection procedure" had ever been instituted against the nominee, and No. 39 asked: "Do you have any expectation that you will be the subject of any tax, financial or other audit or inquiry?"

People familiar with the Obama transition said Daschle did not reveal his tax issue on the questionnaire.

"The car and driver is not something that will come up in a review of documents or tax returns," said a Washington lawyer who helped vet candidates. "It really is something you find out about in doing an interview of the potential nominee. You just have to ask the questions."
Some close to the process said the Obama team believed that the various tax errors were innocent mistakes and that any furor over them could be overcome.

"Every time a nominee gets in trouble for something, another question gets added to the questionnaire," one transition official complained. "We're getting to the point -- Killefer might be a better example -- where you're [having to hire] people out of some hermetically sealed tank."
Clay Johnson III, who ran President George W. Bush's transition team and later served in the White House as presidential personnel director, said he is surprised to see three of Obama's nominees weighed down by tax troubles considering that paying -- or not paying -- taxes has long been the top concern for vetters.

"It's huge," Johnson said. "Do you pay your taxes? . . . It is something that is checked religiously."

Staff writers Paul Kane, Shailagh Murray, Philip Rucker and Ceci Connolly and research editor Alice Crites contributed to this report.