BRANCACCIO: Welcome to NOW.

You can miss a lot in the hurly burly of the season, but don't miss this: right now House and Senate leaders are furiously negotiating the final details of "The Deficit Reduction Act." Sounds nice, right? Think again.

Insiders say the budget deal will actually make the deficit worse. There are spending cuts that could eliminate food stamps for over one-quarter of a million people and reduce Medicaid benefits for about five million, half of them children. But at the same time Congress is trying to cut taxes which could wipe away those savings.

Senior Correspondent Maria Hinojosa and producer Brenda Breslauer have our report.

MARIA HINOJOSA: The budget cuts being hammered out in Congress this week could have dramatic consequences for many families.

ROYAL HARRIS: Quite simply if the cuts come down, I have to be the safety net.

LINDA RIDINGS: It's the difference in paying my electric bill. It's the difference of being able to buy my son some clothes.

MARIA HINOJOSA: Faced with a looming 300 billion dollar budget deficit this year alone, Congress came up with what's being called "The Deficit Reduction Act." The House of Representatives version of the bill targets programs for the poor, the working poor and even the middle class: food stamps, Medicaid, foster care and student loans.

Dr. Bruce Goldberg is Director of Human Services for the state of Oregon.

DR. BRUCE GOLDBERG: What these cuts mean is that our poorest and most vulnerable citizens are going to lose access to health care, as well as the help they need to feed themselves.

MARIA HINOJOSA: That's a big deal in Oregon. Five years ago it led the nation in hunger. But it tackled the problem, helped in part by the federal food stamp program. If the House version of the budget goes through, as many as 35,000 people in Oregon stand to lose their food stamps.

One of those people is Linda Ridings. Thirteen years ago, Linda was diagnosed with spinal meningitis. The swelling in her brain triggered chronic, debilitating migraines. Unable to work, she is now on disability…

LINDA RIDING: I was making 35, 45 thousand dollars a year as a payroll accountant. You know took care of myself, pretty much. It was life-altering.

MARIA HINOJOSA: Then, a year and a half after he was born, Linda's son Andrew was diagnosed as developmentally delayed.

LINDA RIDING: He's got a speech disorder, so he can't talk and verbalize stuff he needs.

MARIA HINOJOSA: Raising her son alone, Ridings says she had no choice but to turn to the government for help. An Oregon state program funded in part by federal Medicaid dollars provides crucial therapy for Andrew, giving him at shot, Linda says, at being a regular kid.

LINDA RIDINGS: Without those programs he would be so far behind. Without Medicaid, he'd have nothing.

MARIA HINOJOSA: But Congress has proposed cutting $12 billion dollars from Medicaid in the House version of the bill. That puts Andrew's benefits at risk. At $19,000 a year in income, the family is just above the poverty level, considered the "near poor."

LINDA RIDINGS: It's like we're not poor enough sometimes. But we're not, you know, we don't have enough money to pay for things either.

MARIA HINOJOSA: The proposed Medicaid cuts will likely hit those just above the poverty level. That means many hard working Americans trying to raise families and make ends meet will also feel the effects.

DR. BRUCE GOLDBERG: What we're seeing is there's more and more need for our Medicaid program. And the reason is is because we have families who are working who can now no longer afford to pay the premiums for employer sponsored health care.

MARIA HINOJOSA: Take for example the Harris family. Also from Oregon, the Harrises, who considered themselves middle-class hit some bumps on the road. Just a few years ago, both Kyna and Royal were working professionals — she was in interior design — he was a mental health counselor. The couple had never depended on any kind of government help.

KYNA HARRIS: I always felt fortunate that we had employers that paid for a good portion of our health care.

MARIA HINOJOSA: But two years ago, both parents lost their jobs. Royal found work again but Kyna decided to go back to school for her MBA. Now they had to survive on Royal's salary of 26 thousand dollars a year putting the family of five — just above the poverty level. Suddenly, the health care benefits the family had taken for granted became a luxury. It would cost $1,100 a month for health care coverage.

ROYAL HARRIS: It changes everything. It changes where we live. It changes how we eat. It changes whether or not we put gas in the car.

MARIA HINOJOSA: Kyna made the difficult decision to forego insurance entirely… her three kids though qualified for Oregon's state health plan called S-CHIP…the Children's Health Insurance Program, funded in part by federal Medicaid dollars.

KYNA HARRIS: We do not desire to be on-- Medicaid. That not, you know, this is a short-term thing for us. And we're only asking for short-term help.

MARIA HINOJOSA: Few people, says Linda Ridings, really want to depend on the government.

LINDA RIDINGS: You know people think that-- a lot of times people who are on government assistance are either lazy or they're stupid. I mean if you were in this position, there's no way that you would want to be here.

MARIA HINOJOSA: So why does Congress want to cut programs such as Medicaid, food stamps, and foster care? Aren't there other places with government fat?

CONGRESSMAN JIM COOPER, (D-TN): We're passing some terrible legislation and yet not one has been vetoed.

MARIA HINOJOSA: Congressman Jim Cooper of Tennessee, a fiscally conservative Democrat, says spending in Washington is out of control.

CONGRESSMAN JIM COOPER, (D-TN): Guess who's getting the money? Big contributors, Special interest projects — pork barrel spending has mushroomed far beyond anybody's realization. We saw a lot of it in the highway bill. There were billions of dollars spent there. Some on a bridge to nowhere in Alaska. This earmarked spending that goes back to Congressional districts really to buy votes.

MARIA HINOJOSA: Cooper thinks the budget is so important to understand that he wrote up his own presentation, a nuts and bolts powerpoint he calls The Budget School. Think of it as national debt and deficits for beginners.

At what point did you say, Gee, this is so complicated I'm gonna make people go to budget school?

CONGRESSMAN JIM COOPER, (D-TN): I've always been a nerd. And now I'm a college teacher. So that makes it easy to try to explain things.

MARIA HINOJOSA: Just talking to Congressman Cooper is a downer.

CONGRESSMAN JIM COOPER, (D-TN): Our nation's top accountant told America last year that, quote, "Arguably 2004 was the worst year in our entire fiscal history." And that includes the Depression, the Civil War, terrible times in American history. And, yet, hardly anybody knows this. And if your company got a report from its accountant like that, you'd be talking to your bankruptcy lawyers. Well, that's what's happened to America.

MARIA HINOJOSA: But a lot of people would say, "You know, we may have a deficit. We may have a national debt. But I don't feel it. I'm doing ok."

CONGRESSMAN JIM COOPER, (D-TN): Well, people felt fine before Hurricane Katrina too, and before the tsunami. But when you can see a wave or a storm coming in the distance, it's your obligation to warn people about it.

MARIA HINOJOSA: The Congressman is so obsessed with that message that right outside his office in downtown Nashville, he posts a tally of our national debt. Over 8 trillion dollars, below that the number each one of us is responsible for, $27,000 per American.

Cooper says Congress has reneged on its duty to balance the budget. And worse, he claims, the budget isn't even being debated in a democratic way.

JIM COOPER: We passed the entire budget for the United States, $2.6 trillion, and we did it from start to finish in two hours. Not two weeks, two months. How did we do that? Well, we got the report from the Senate. Nobody had a chance to read it. So we just rubber stamped it in the House.

MARIA HINOJOSA: A trillion dollar budget, voted on in two hours.

JIM COOPER: 2.6 trillion in two hours. Yeah.

MARIA HINOJOSA: So people are saying, "How's that possible that it can be done in two hours?" This is our money."

JIM COOPER: Yeah. Well-- it happens in a room in the attic of the capital. It's called the Rules Committee. Seldom is a TV camera allowed in the Rules Committee. But that is a group that is dominated by the majority party. So they always win every vote. And they wave all the rules. All the sensible rules that mean that we should be able to read it. We should-- know what the cost is. Sensible rules like that. They just throw out the window.

MARIA HINOJOSA: So just what is Congress doing to deal with the deficit? Not much according to Cooper. While cutting all those social programs we mentioned earlier, Congress is making even greater cuts in taxes, many of which will benefit the wealthy. And since the tax breaks outweigh the spending cuts, it doesn't reduce the deficit at all.

Here's how it looks on paper. Congress has split the legislation into two parts — considering the spending cuts in one bill and the tax cuts in others. In the House of Representatives, that means 50 billion in spending cuts, including cuts in many programs for the poor, but $95 billion in tax cuts, many of which benefit the wealthy.

JIM COOPER: It's shameful isn't it? It's a reverse Robin Hood. It's not like Robin Hood, taking from the rich and giving to the poor. It's a reverse Robin Hood. They're taking from the poor in order to give to the rich.

MARIA HINOJOSA: We asked every member of the Republican leadership in both houses of Congress to sit down and talk with us about the budget. No one would. But in photo ops, Republican lawmakers say tax cuts are a way to stimulate the economy and bring more money into the treasury.

REP. ERIC CANTOR (R-WV): These are not, as the Democrats may say, tax cuts for the rich. I see them as tax cuts for job creation.

REP. ROY BLUNT (R-MO): It's a vote not to increase taxes and by not increasing taxes it is a vote to keep this robust economy moving forward…

MARIA HINOJOSA: And, thanks to Congress, there's even more tax breaks in store for millionaires. Consider the effect of two tax cuts passed in 2001 that are set to kick in next month. If you make under $75,000 a year, you will get a tax cut of nothing. If you make between $100,000 to $200,000, on average you'll get a tax cut of $25. But if you make over a million dollars a year, you will pocket around $19,000.

JIM COOPER: The rich folks I know, they aren't asking for anymore tax cuts. They think they've gotten plenty. They want a stronger America.

MARIA HINOJOSA: Meet lifelong Republican John Whitehead. He is one of those millionaires set to benefit from the tax cuts.

JOHN WHITEHEAD: It would give me a little more income. But it's income I don't really need. Wouldn't spend.

MARIA HINOJOSA: Whitehead is retired now but in the 1980's he was Co-CEO of the multi-billion dollar investment bank Goldman Sachs. He served under Ronald Reagan as Deputy Secretary of State and has counseled many prominent Republican leaders over the years. The world John Whitehead moves in is one of the elite, the mega rich, the powerful.

JOHN WHITEHEAD: And dinner with Tony Blair.

MARIA HINOJOSA: Whitehead lives in a four story townhouse on one of Manhattan's most expensive blocks near the East River. His home is filled with extraordinary artwork by impressionist masters.

Millionaires like Whitehead might be happy about keeping an extra $20 thousand dollars a year in their pockets, but as a former Chairman of The Federal Reserve Bank of New York and a former CEO of one of the largest investment banks in the world, Whitehead is concerned about the broader state of our economy.

MARIA HINOJOSA: You're saying that this particular time is the worst time in terms of the federal deficit and the fiscal state of affairs in our country?

JOHN WHITEHEAD: Yes. I think the most dangerous time, maybe-- in my lifetime. And I've been looking at these things for quite a few years now. I suppose 1928 looked something like it does today. Everybody was happy in 1928. But doom came in 1929 and it lasted-- the Depression lasted for many years.

MARIA HINOJOSA: In fact, John Whitehead is so worried about the deficit that he is asking for something many Republicans might find unthinkable.

MARIA HINOJOSA: So, you as a lifelong Republican, are saying we need to raise taxes?

JOHN WHITEHEAD: Yes, I think we do. I think we have to find more sources of income. I think every CEO that I know would not mind a bit if the upper brackets of his taxes were increased.

MARIA HINOJOSA: Would not mind?

JOHN WHITEHEAD: Would not mind.

MARIA HINOJOSA: That's not what you would expect to hear from--

JOHN WHITEHEAD: Not a--

MARIA HINOJOSA: --somebody whom might be a..

JOHN WHITEHEAD: Not at all. And you might not hear it from him because they don't like to say it.

MARIA HINOJOSA: Whitehead is part of a growing chorus of bipartisan wealthy Americans who are convinced that the budget proposals of today will only reek economic havoc in the future. One group, Responsible Wealth, an organization restricted to the wealthiest 5 percent of Americans, has called upon the feds to raise their taxes and pledged to donate their tax breaks to non-profit institutions. Another group, The Concord Coalition, has taken out a full page ad warning that cutting taxes without cutting more spending is just plain wrong.

JOHN WHITEHEAD: It's not the time to cut taxes. The government is just not acting responsibly anymore. They're really not doing the right thing.

MARIA HINOJOSA: This is from your Republican party-- who say tax relief is part of the deficit solution, not part of the problem. More economic growth and more jobs mean more tax revenue for the treasury. True?

JOHN WHITEHEAD: No, that's not my Republican party. That's the Republican party of those who lead it now. They've taken away the party from we moderate Republicans.

MARIA HINOJOSA: So why do you think that this Republican party, this Republican dominated Congress, wants to do what it's doing?

JOHN WHITEHEAD: Well, I think reelection is very important to them. And staying in office.

MARIA HINOJOSA: Back in Washington, as Congressional leaders scramble to make a budget deal before year's end, the politics continue with the Democrats saying they've been excluded from the process.

And in Portland Oregon, those dependent on these government programs await the outcome. Linda Ridings worries that if her son's Medicaid programs are cut back, it will change his life forever.

LINDA RIDINGS: Without those services he might not graduate from high school. It'll set up a lifetime of hopelessness for him. It's like you're condemning him before he even gets out of the first grade.

MARIA HINOJOSA: As for the Harris family, if the budget cuts pass, Oregon may reduce their children's health benefits or disqualify them all together.

ROYAL HARRIS: I invest my money in this country. I pay my taxes. I do these things. And at those points when I need it back, it's not there.

MARIA HINOJOSA: For your family, what does it look like? With these cuts?

ROYAL HARRIS: It looks like them viewing their government and their-- and their country as someone who doesn't have a vested interest in them.

LINDA RIDINGS: It's really frustrating because - I'm at the mercy of the government and whatever they do. They have the control to either, you know, make or break my life really. You know? And the thing that breaks my heart is that it's not Andrew's fault that he was born to a mother who's disabled. But it's like, he's being punished for it. And I'm powerless to do anything about that.

BRANCACCIO:We need to talk about Iraq. Voters there went to the polls yesterday to elect a new parliament to govern the country.

We've invited George Packer to help us understand what it all means. Packer, who describes himself as a liberal, was an early supporter of the American invasion. He's now travelled to Iraq four times. He chronicles how he came to view American efforts there as a failure in his new book, ASSASSIN'S GATE.

BRANCACCIO: Well George, thanks for doing this.

GEORGE PACKER: Thanks for having me.

BRANCACCIO: So, everybody agrees, A, great news that there's high voter turnout, that the level of violence was relatively low, that Sunni participation was high. But our job here is to go deeper than that. Iraq clearly, from your writings — a very divided place. How far did this election go toward healing those big divisions?

GEORGE PACKER: I think that this election simply allows Iraq to have a chance to avert the worst. If this election had gone badly, if the Sunnis had not participated as they didn't last January, then I think Iraq would slide inevitably toward civil war. This election now brings Sunni Arabs into the political game and puts them at the table with the big Shiite party and the Kurdish Alliance to start haggling over the future of Iraq and what kind of country it's going to be.

And it's also interesting that the insurgents seemed to have allowed this election to go forward.

BRANCACCIO: So, you think this will shut up the insurgents--

GEORGE PACKER: No, no, it won't. I think they said, "For one day, we want Sunnis to vote. Because we now acknowledge that we have suffered by not being at the table with the other major groups in Iraq."

That doesn't mean the insurgents are going to put up their AK-47's and stop planting their homemade bombs. I think we'll see a return to violence as we did after the January election. They may now be pursuing a two track strategy one with a political face in which their elected representatives have some murky ties to the insurgents. And the other track will continue to be violent.

BRANCACCIO: President of the United States calls this a good step forward. THE WALL STREET JOURNAL went further today. They said this is a rebuttal to American defeatists. Is that your view?

GEORGE PACKER: No, I hate it when it's politicized in that way. Because really winning the argument here is irrelevant. What matters is whether Iraq moves toward a viable successful, relatively unified country.

And this election is a good step along that. And we've made mistakes in the past by imagining that in having a successful election in January, and passing a Constitution in October, Iraq was going to turn the corner. It never did. The violence continued. And that's because this is a long hard years-long process.

BRANCACCIO: And a lot of hard work ahead here as, you know, we have to wait for the elections returns. But it looks like they're going to have the hard work of putting together a coalition government.

GEORGE PACKER: The question is will the US government in Washington remain focused and engaged? We don't have any money earmarked for democracy programs in Iraq beyond this election. We still don't have enough translators, by far, in our battalions in Iraq. There's so many ways in which we still, up until now, for all the rhetoric, have not committed resources, personnel and above all political effort and will to making this a success. And my worry is that this election has been so successful that it's going to encourage the administration to in a sense say-- "Our job is almost done. And we can afford to coast a little bit." We can't afford to coast in Iraq.

BRANCACCIO: George, what about this, successful democracy does flower in Iraq. And it gives a lot of power to very religious Shia groups who may want to create an Iraqi state that is not exactly what many Americans envisioned Iraq would become.

GEORGE PACKER: That's already happened in the south in Basra and other Shiite cities.

BRANCACCIO: Where you've traveled?

GEORGE PACKER: Yeah, I was in Basra for last January's elections. And it was clear that the Shiite religions parties, with a lot of Iranian backing, were imposing a kind of vigilante rule on social life. Women had to be veiled. There was a lot of oppression in sort of daily life.

And the police force had been infiltrated by the Shiite militias. And now the Basra police force really is under the control of militias who's main loyalty is to their party and their Ayatollah rather than to the state of Iraq.

This is a real problem. And it's going to be a bigger problem when the Sunnis come to the table. Because now Shiites who have Iranian backing are going to be facing off against Sunni politicians who see Iran as their ultimate enemy, greater than America. And the question is can these two groups find a way to make Iraq a place where they can live together. Or is it going to break apart at the table as it seems to be breaking apart in the streets.

BRANCACCIO: Well, George Packer, staff writer, NEW YORKER magazine. Thank you very much.

GEORGE PACKER: It was my pleasure.

BRANCACCIO: We now want to correct the record for our November story on Hispanics working to rebuild New Orleans. Part of that story looked at the president's decision to waive wage protections during the early days of the rebuilding. Union electricians we talked to told us — and testified before the Senate — that waiving what's called the Davis-Bacon Act resulted in their layoffs, with lower wage workers hired instead.

Those electricians had done work at the Belle Chasse Naval Air Station for a company hired by BE & K. BE&K told us, and we reported, that the union electricians were laid off because their work was "substantially complete."

But how about the lower wages? BE&K told us the electrical workers who stayed on the job were indeed getting less pay. They say $18.62 an hour plus benefits. That would have been illegal under Davis-bacon. But, BE&K told us that Davis Bacon didn't apply to their contract. We should have reported that the company told us their contract was governed by the Service Contract Act, and that the lower wage they were paying was in compliance with that act. You can read BE&K's full letter and our response on our Web site at www.pbs.org.

And that's if NOW. From New York, I'm David Brancaccio.

BRANCACCIO: Connect to NOW online at pbs.org.

Crunch the numbers of the proposed budget

Join the debate over the deficit

More from George Packer

Connect to NOW at pbs.org.