GAO: Fiscal picture improving, but debt track still 'unsustainable'

While the nation's fiscal picture would improve if the debt limit agreement, and its $1.2 trillion sequester, are allowed to go through, its impact on the economy is more worrisome. Federal Reserve Chairman Ben Bernanke has repeatedly warned lawmakers that the dramatic policy swings set to take effect on Jan. 1, when the sequester hits and the Bush tax cuts are set to expire, could be so dramatic as to endanger the fledgling recovery. He has instead called for them to be replaced with more gradual changes to avoid that shock. The GAO did not consider the economic impact of policy in its analysis.

On the healthcare front, the GAO said the healthcare reform law, if implemented as intended, would have a "major effect" on that fiscal gap, but would not erase it as the population continues to age and healthcare costs climb. The amount of debt issued by the government will continue to climb under current policy, placing the government on an "unsustainable" track, according to the GAO.

Under an alternative scenario where lawmakers delay a number of pending policy changes, the debt picture is even worse. In that scenario, the Bush tax cuts and other temporary tax breaks are extended for another decade, and the automatic "trigger" cuts brought on by the failure of the supercommittee are not enacted. Revenue and discretionary spending are kept at historical averages.

In that situation, the government will pass its all-time high for debt — 109 percent in 1946 — around 2025. Under current law, the government would not clear that threshold until roughly 20 years later.