President Obama’s promise to set a new ethical standard for American politics was left severely shaken yesterday when two nominees for senior posts were forced to withdraw amid bitter controversy over their personal tax records.

In probably the biggest blow that the Administration has suffered so far, Tom Daschle left colleagues shell-shocked by announcing that he was pulling out of the nomination process for the post of Health Secretary. Mr Obama blamed himself for the debacle during a television interview last night, saying: “I screwed up.”

For three days Mr Daschle had been struggling to explain his failure to pay $128,000 (£89,000) in taxes for a car and driver provided to him by a wealthy Democratic donor. Mr Obama had strongly backed the former Senate leader, who was one of his earliest supporters and had been given control over the policy of healthcare reform.

Yesterday morning, as it was announced that Nancy Killefer was withdrawing from consideration as Mr Obama’s Chief Performance Officer and budget enforcer over a similar tax issue, Mr Daschle gave up the fight. He said: “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.”

Mr Obama released a statement saying that he had accepted Mr Daschle’s decision “with sadness and regret”. He added: “Tom made a mistake, which he has openly acknowledged. He has not excused it, nor do I.”

Ms Killefer, a director of the McKinsey management consultancy firm whose brief was to cut waste and to improve government efficiency, is reported to have failed to pay taxes for more than a year and a half on household help.

The twin withdrawals followed Tim Geithner’s public embarrassment over his belated payment of tens of thousands of dollars in back taxes owed from his time working for the International Monetary Fund — despite having signed paperwork acknowledging his obligation. He was confirmed as Treasury Secretary only after making a full apology to Senators.

Robert Gibbs, the press secretary, said that the ethics rules had been the strongest “that any administration in the country has ever set” but also acknowledged that there were exceptions to Mr Obama’s pledge to run a government free of former lobbyists.

His nominees for deputy secretaries of defence and health have both recently worked as lobbyists. Mr Daschle himself had amassed $5.2 million in income since losing his Senate seat four years ago — some of it from healthcare interests that he had hoped to regulate.

Mr Obama, who is facing an increasingly difficult battle to win cross-party backing for a proposed $890 billion economic stimulus Bill, sought to burnish battered dreams of bi-partisanship by nominating Judd Gregg, a fiscal conservative and Republican senator, for the post of Commerce Secretary. It had been left vacant after the withdrawal of Bill Richardson amid allegations that the New Mexico Governor channelled state contracts to a company that had donated to his campaigns.

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