(Updates with withdrawal letter, background; adds byline)
By Jeff Mason
WASHINGTON Feb 3 U.S. President Barack Obama's choice to oversee budget and spending reform, Nancy Killefer, withdrew her nomination on Tuesday because of tax problems, she said in a letter released by the White House.
Killefer is the third high-profile Obama appointee to be plagued by tax-related issues, putting a blot on a transition to power that the Obama administration had hoped would be controversy-free.
Killefer, a director at management consulting firm McKinsey & Company and a former assistant Treasury secretary in the Clinton administration, had been named to a newly created position working with economic officials to increase efficiencies and eliminate waste in government spending.
"I recognize that your agenda and the duties facing your chief performance officer are urgent," Killefer wrote in the letter to the president, asking for her nomination to be withdrawn.
"I have also 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 those duties must avoid."
Obama declined to answer a shouted question about the issue during a ceremony announcing his pick for commerce secretary, Republican Sen. Judd Gregg of New Hampshire.
A White House spokesman said Killefer's request had been accepted.
"She has withdrawn and we accepted her withdrawal," he said. Killefer, who would have served as the deputy director of the Office of Management and Budget, would have required confirmation by the U.S. Senate for her position.
Tax problems are plaguing Tom Daschle, the former Senate majority leader selected by Obama to spearhead U.S. healthcare reform. Treasury Secretary Timothy Geithner's nomination was also held up for tax issues, although he was eventually confirmed.
Killefer did not go into detail about the unemployment tax mentioned in her letter. She said her request for withdrawal was made with reluctance.
Obama has repeatedly promised that his administration would go "line by line" over its budgets with a focus on fiscal responsibility even as he seeks huge amounts of money to stimulate the U.S. economy.
(Editing by David Wiessler)