Seal of the U.S. Government Accountability Office. (From GAO Web site)
Weaknesses in the economy and financial markets--and the government's response to them--have helped boost federal budget deficits, which reached a record level in fiscal year 2009, the General Accountability Office reported on Thursday.
The situation probably won't improve any time soon: "While a lot of attention has been given to the recent fiscal deterioration, the federal government faces even larger fiscal challenges that will persist long after the return of financial stability and economic growth," the report says.
The GAO has been publishing long-term fiscal simulations since 1992, in response to a bipartisan request from Congress. According to the GAO, lawmakers asked for the projections because they were concerned about the long-term effects of fiscal policy.
Lawmakers were right to be concerned, the latest report indicates: "GAO's simulations continue to show escalating levels of debt that illustrate that the long-term fiscal outlook remains unsustainable," the August-October 2009 assessment said.
Under one GAO scenario that looks ten years ahead, debt held by the public as a percent of Gross Domestic Product is projected to exceed the historical high reached in the aftermath of World War II and grow at a steady rate after that.
The GAO says the nation’s fiscal challenges are driven by the growth in health care costs as well as demographic trends. It also notes that without reform, Social Security, Medicare and Medicaid will account for a growing share of the economy in coming years.
"The longer action to deal with the nation's long-term fiscal outlook is delayed, the larger the changes will need to be, increasing the likelihood that they will be disruptive and destabilizing," GAO concludes. 
The report suggests that lawmakers should consider easing in policy changes – “so that the tax increases or spending cuts would grow over time and allow people to adjust.”