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Nancy Killefer: Obama's Chief Performance Officer

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WASHINGTON — Nancy Killefer withdrew her candidacy to be the first chief performance officer for the federal government on Tuesday, saying she didn't want her bungling of payroll taxes on her household help to become a distraction for the Obama administration.

Killefer was the second major nominee to withdraw. Within hours, former Sen. Tom Daschle also withdrew his nomination to be secretary of health and human services.

In a brief letter to President Barack Obama, Killefer, the 55-year-old executive with consulting giant McKinsey & Co., wrote that 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" that must be avoided in responding to urgent economic problems.

She offered no further details of her tax difficulties.

In announcing his choice of Sen. Judd Gregg to be commerce secretary, Obama took no questions Tuesday and left the White House lectern ignoring a shouted question about why so many of his nominees have tax problems.

But White House press secretary Robert Gibbs later insisted Killefer and Daschle decided on their own to withdraw. "I think they both recognized that you can't set an example of responsibility but accept a different standard in who serves," Gibbs told a White House briefing.

When Killefer's selection was announced by Obama on Jan. 7, The Associated Press disclosed that in 2005 the District of Columbia government had filed a $946.69 tax lien on her home for failure to pay unemployment compensation tax on household help. Since then, administration officials have refused to answer questions about the tax error, which she resolved five months after the lien was filed.

It wasn't clear whether the administration was aware of Killefer's tax errors before Obama named her. Gibbs refused to say what administration vetters knew about the problem or when. Gibbs maintained that Obama has confidence in the vetting system. But late on the day Killefer was first named, an administration official asked an AP reporter how the AP had found the tax lien against her.

A Senate Democratic aide said the administration had advised the Senate Homeland Security and Governmental Affairs Committee that Killefer had tax problems involving her household staff. The administration did not view her problems as insurmountable in themselves but believed that in combination with Geithner and Daschle they made her nomination untenable, according to this aide, who was not authorized to speak on the record and demanded anonymity.

Obama's first choice for commerce secretary, New Mexico Gov. Bill Richardson, withdrew when his confirmation appeared headed toward complications because of a grand jury investigation over how state contracts were issued to political donors.

More recently, Tim Geithner was confirmed as Treasury secretary despite belatedly paying $34,000 in income taxes, and Daschle acknowledged his late payment of more than $128,000 in income taxes.

On paper, Killefer brought impressive credentials to the two jobs Obama selected her for: deputy director for management at the Office of Management and Budget, which requires Senate confirmation, and a new White House post, chief performance officer for the entire federal government, which does not require confirmation.

Killefer oversees McKinsey's management consulting for government clients. During 1997-2000 in the Clinton administration, she was assistant treasury secretary for management. As such she was the chief financial officer and chief operating officer for the Treasury Department and its 160,000 employees, and she led a modernization of its largest component, the Internal Revenue Service.

The AP reported that on March 7, 2005, the D.C. Department of Employment Services slapped a tax lien on her home in the upscale Wesley Heights neighborhood. The local government alleged that beginning three years after she left the high-powered Treasury post she failed to pay unemployment compensation tax for a household employee. She failed to make the required quarterly payments for a year and half, the D.C. government said, whereupon a lien for $946.69 was placed on her home.

That sum included $298 in unpaid taxes, $48.69 in interest and $600 in penalties. Killefer didn't get the lien extinguished for almost five months, until July 29, 2005.

During that period, Killefer and her husband, an economics professor, had two nannies to help care for their teenage son and daughter, and she had a personal assistant to run things when she was on the road, she told Harvard business students back then.

Bobby Tucker, chief of D.C.'s unemployment insurance tax division, said filing tax liens is "not a common practice" for his office. D.C. law authorizes such liens when an employer "neglects and refuses" to pay the levy that helps pay for unemployment benefits for those laid off or fired. Tucker said his auditors have discretion to use tax liens based on "the number of attempts to collect contributions owed, whether or not the employer responds to written attempts, phone calls and-or in-person visits" to collect the tax.

Tucker said, however, that his department's lawyers would not let him discuss the specifics of Killefer's case.

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