Tax issues scuttle Daschle bid

WASHINGTON – The withdrawal of Tom Daschle’s nomination Tuesday as secretary of Health and Human Services reflected a growing recognition in the White House that his tax problems were igniting anger across the country over an apparent double standard: that Washington insiders could be careless about their taxes while ordinary Americans had to sacrifice.

As late as Monday night, the former Senate Democratic leader thought he could survive the disclosure that he only recently had paid some $140,000 in back taxes. But by Tuesday morning, that estimate had changed.

Coming in the wake of Treasury Secretary Timothy Geithner’s admitted failure to meet his own basic tax obligations, Democratic senators and administration allies began expressing concern to the White House about Daschle’s ability to weather the criticism and remain an effective leader on health-care reform.

The concern was all the greater because Nancy Killefer, who was to head President Barack Obama’s new office devoted to improving government performance, acknowledged that she had not paid employment taxes for a household employee and withdrew her appointment.

The groundswell had been building outside Washington for several days. Late last week, Internet bloggers sympathetic to Obama had begun blasting Daschle on the back taxes, as well as on his ties to the pharmaceutical industry and others with stakes in health care legislation.

Obama, seeking to turn attention back to his economic stimulus plan, moved quickly Tuesday to take responsibility for the Daschle imbroglio.

“I’ve got to own up to my mistake, which is that ultimately it’s important for this administration to send a message that there aren’t two sets of rules. You know, one for prominent people and one for ordinary folks who have to pay their taxes,” Obama said in an interview on NBC News.

“And so I’m frustrated with myself, with our team. And I’m here on television saying I screwed up and that’s part of the era of responsibility, is not never making mistakes, it’s owning up to them and trying to make sure you never repeat them and that’s what we intend to do.”

Obama had entrusted Daschle with his most ambitious domestic priority: reducing the cost and expanding the scope of health care coverage. Even before Obama was sworn in, Daschle was traveling around the country to build support for Obama’s plans.

In a statement released by the White House on Tuesday, Daschle said that “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,” he said.

Momentum remains

Daschle’s withdrawal is unlikely to derail a health care reform movement that had begun gathering steam even before Obama was elected.

“If anything, there’s more urgency for us to keep up the momentum,” Sen. Max Baucus, D-Mont., said Tuesday.

Skyrocketing health care costs, the growing ranks of the uninsured and increasing concern among business organizations over the cost of offering medical benefits had been driving groups long at odds into more cooperative positions.

And on Capitol Hill, senior lawmakers have been moving ahead with plans for legislation that would advance many of the goals Obama and Daschle had talked about.

But completing that process likely will be harder without Daschle, who was popular with lawmakers on both sides of the aisle and was seen as consensus builder who could have helped shape the kind of grand compromise many believe will be necessary. The soft-spoken South Dakota Democrat served 10 years as the party’s leader in the Senate as part of a 26-year legislative career. After leaving Congress, he became a leading champion of health reform while building relationships with key interest groups critical to the debate.

Now Obama will have to find a new person to carry forward his most ambitious policy agenda. That selection process will likely take some time, White House officials said, especially given the necessity for close examination of candidates’ backgrounds.

Few of the people immediately mentioned as possible replacements for Daschle would bring his level of experience on Capitol Hill. A number of candidates – including Democratic Kansas Gov. Kathleen Sebelius, a popular governor who is widely respected for her work on health care – have never served in Washington.

Taxes not the only concern

If both Daschle and Killefer had been confirmed, that would have made three top Obama officials who had been allowed to serve despite having owed back taxes – making it hard for Obama to insist he was imposing the strictest ethical standards in that case.

So in the morning, news broke that Killefer had withdrawn. And Daschle pulled out shortly afterward.

Last month, Daschle paid more than $140,000 in back taxes and interest stemming from his failure to report as income the use of a car and driver provided by InterMedia Advisors, a New York private equity fund that Daschle has worked for since he left the Senate in 2005.

Geithner was confirmed despite nagging concerns that the man who would oversee the Internal Revenue Service had himself failed to pay $34,000 in payroll taxes. In Killefer’s case, she had been hit with a $947 tax lien from the District of Columbia in 2005 over back taxes on a household employee.

At least one public health advocate expressed relief that Daschle had quit, not so much because of his tax problems but because of a fear that the wealth he had obtained, at least indirectly, from health care corporations would compromise his ability to lead.

Dr. Marcia Angell, former editor-in-chief of the New England Journal of Medicine, said Tuesday that she was “pleased” with Daschle’s withdrawal.

“I was much more concerned about his history of working on behalf of the private health insurance industry than I was about his tax issues,” said Angell, who teaches now at Harvard Medical School. “As Secretary of HHS and head of the Obama health system reform effort, he would inevitably have had to make decisions that greatly affected his former clients.”