WRAPUP 5-Obama hit by withdrawal of health nominee Daschle
*Daschle withdraws after tax flap
*Obama takes responsibility for mistakes in process
*Second nominee also felled by tax questions
WASHINGTON, Feb 3 (Reuters) - Barack Obama's choice to head U.S. healthcare reform withdrew in a flap over personal taxes on Tuesday, prompting the president to admit "I screwed up" and distracting from his drive for a nearly $900 billion economic stimulus plan.
Tom Daschle, a former Senate Democratic leader and key Obama adviser who was named as health secretary, withdrew after a storm over late tax payments raised questions about Obama's pledge to bring high ethical standards to the White House.
Daschle said he did not want to become a "distraction" after paying $140,000 in back taxes for failing to report as income the use of a company car and driver for several years.
Obama said in a statement he accepted the decision "with sadness and regret" because Daschle was highly qualified for the post, and he acknowledged in television interviews later that he had erred in not anticipating the problems.
"I think this was a mistake. I think I screwed up and I take responsibility for it," Obama told CNN, adding he did not want to send a message there is one standard for the powerful and another standard for ordinary people.
"Ultimately I have to take responsibility for a process that resulted in us not having an HHS (Health and Human Services) secretary at a time when people need relief on their healthcare costs," he told Fox.
White House spokesman Robert Gibbs said Daschle made the decision to withdraw himself and it did not mean Obama's healthcare plans were in trouble.
"The issue of affordable healthcare ... is bigger than one person," Gibbs said. "I don't think the effort slows down for health care reform."
But some Democrats said the removal of Daschle, who had written a book on healthcare reform and had broad experience in Washington, was a significant setback.
"It hurts, because Tom Daschle brought special experience and qualities to this undertaking that almost no one can match," said Senator Richard Durbin. "It does slow us down."
Daschle's withdrawal came shortly after Obama's nominee to become the first U.S. "chief performance officer" also dropped out on Tuesday because of tax questions.
Nancy Killefer, Obama's choice to oversee budget and spending reform, said she did not want her problems to create "distraction and delay." [ID:nWAT010894]
She was the third Obama nominee to have tax problems, following Daschle and Treasury Secretary Timothy Geithner, who was approved after facing questions about late payments.
DISTRACTION FOR OBAMA
The staff issues put Obama, who is just two weeks into his presidency, on the defensive. On Monday, he said he "absolutely" backed Daschle.
Obama, a Democrat, succeeded Republican George W. Bush on Jan. 20 after an election campaign in which he pledged to bring high ethical standards and transparency to Washington.
On Tuesday, Obama sought to highlight his ability to work across party lines by naming a third Republican to his cabinet as commerce secretary and pressing ahead with his drive to pass a nearly $900 billion stimulus package to revive the economy.
But Daschle, after he received backing from Obama and Democratic senators on Monday, was hammered in newspaper editorials on Tuesday over his taxes as well as his work as an adviser to a private equity firm.
"Surely President Obama can find qualified people to serve in his cabinet who aren't hustling to write overdue checks to the IRS," the Philadelphia Inquirer said. "Daschle's error is too serious to ignore; it should disqualify him from serving in the cabinet."
DASCHLE ISSUE GRABS SPOTLIGHT
The recurring tax embarrassments threatened to grab the spotlight as Obama pushed for rapid passage of an economic stimulus bill aimed at pulling the U.S. economy out of its worst crisis in decades.
"The only measure of my success as president when people look back five years from now or nine years from now is going to be did I get this economy fixed," Obama told CNN. "I'm going to be judged on did we pull ourselves out of recession."
He said he viewed Feb. 16 as a firm deadline for passing the stimulus bill, telling Fox, "Nobody disagrees with the idea that if we keep on putting this off that we're going to end up seeing more months with half a million people losing their job each month. We can't afford to wait."
The Senate was debating the stimulus proposal on Tuesday, but Republicans are putting up increasing resistance to Democratic proposals they say favor government spending over tax cuts to revive the economy.[ID:nN03512070]
Obama on Tuesday nominated Senator Judd Gregg as commerce secretary, the third prominent Republican in his Cabinet, but avoided shouted questions about Killefer's withdrawal from her nomination. [ID:nN03525325]
Gregg, 61, is the top Republican on the Senate Budget Committee. He could play a key role in selling Obama's stimulus package to skeptical members of his party.
"Judd is a master of reaching across the aisle to get things done," Obama said at a White House ceremony.
Gregg's nomination followed an earlier embarrassment when New Mexico Gov. Bill Richardson, Obama's first choice for commerce secretary, withdrew in the face of a legal inquiry into a company that did business with the New Mexico state government. Richardson denied any wrongdoing.