May 29 (Bloomberg) -- Elizabeth Garrett withdrew as President Barack Obama’s nominee to be his administration’s top tax-policy official, continuing a vacancy at the Treasury Department that may undercut his tax agenda.

Garrett, 45, would have served as assistant Treasury secretary for tax policy. She cited “aspects of my personal family situation” for her decision in a statement last night.

The position’s vacancy complicates the Obama administration’s efforts to persuade Congress to adopt changes to U.S. tax rules that allow companies to avoid taxes on their foreign profits.

“This is a bad time not to have a point person inside the administration for tax policy,” said Alex Brill, a tax expert at the American Enterprise Institute who was an adviser to former Representative Bill Thomas, a California Republican who was chairman of the House Ways and Means Committee.

Obama “has proposed an aggressive and controversial series of tax increases on multinational corporations,” Brill said, adding that the president’s push for “health-care reform and energy policy reform are expected to have major tax components to them.”

Other Withdrawals

The first few weeks of Obama’s administration were marked by the withdrawal of some high-profile nominees. Former Democratic Senator Tom Daschle of South Dakota, Obama’s first choice to serve as the Health and Human Services secretary, and Nancy Killefer, the pick for deputy director of the Office of Management and Budget, withdrew their nominations amid questions about errors in their tax payments.

The assistant secretary for tax policy represents the administration in negotiating the drafting of legislation on Capitol Hill and provides the agency’s interpretation of laws that have been enacted.

“The assistant secretary for tax policy is the pivot point for all tax policy issues within the administration,” said Greg Jenner, a tax lawyer at Stoel Rives LLP in Minneapolis who held the position during President George W. Bush’s administration. That official “is the face of tax for the administration and provides a key buffer against all the ‘novel’ tax proposals that get made,” he said.

Treasury spokeswoman Nayyera Haq declined to comment on Garrett’s withdrawal beyond what Garrett said in her statement.

Personal Considerations

Garrett, a lawyer and University of Southern California economist, said in her withdrawal statement that personal considerations “have required that I reassess my initial decision to be considered for this office.”

She said she was “confident” that the administration would “continue to pursue policies that will hasten the country’s economic recovery and ensure that our federal tax system is fair and conducive to economic growth.”

Obama nominated her for the post in March. She has spent most of her career in academia, though she also worked as a tax aide to former Senator David Boren, an Oklahoma Democrat, and as a member of former President George W. Bush’s 2005 tax overhaul advisory panel.

“She was a key member and has a solid understanding of the relevant tax policy issues,” the panel’s former staff director, Jeff Kupfer, said in March.

Jeff Trinca, a tax lobbyist at Van Scoyoc & Associates in Washington who became friends with Garrett when both worked on Capitol Hill, said she may not have been willing to undergo the rigorous vetting process Obama imposed on his nominees following the administration’s early stumbles.

‘Through the Wringer’

“The nomination process has gotten so harsh that good people like Beth are unwilling to put them and their families through the wringer,” Trinca said.

Obama has proposed more than $1 trillion in higher taxes on upper-income individuals and corporations, including collecting $190 billion by outlawing offshore tax-avoidance strategies long established in the corporate tax code.

In budget details released earlier this month, he also proposed new taxes on life insurers, securities brokers and private equity executives in addition to letting lower tax rates for households earning more than $200,000 rise in 2011 as scheduled.

Obama also has pledged to tackle a broader tax overhaul, establishing a panel headed by Paul Volcker, former chairman of the Federal Reserve Board, to consider options and make recommendations by December.

Mark Weinberger, who was Bush’s first assistant Treasury secretary for tax policy, said Garrett is well regarded by Democrats and Republicans.

“There are policy proposals on the table that fundamentally change the way we tax ourselves,” said Weinberger, now global tax vice chairman at accounting firm Ernst & Young LLP. “I don’t see how one can move forward without someone at the helm.”

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: May 29, 2009 11:38 EDT