WASHINGTON — As the Obama administration wrestles with how to pay for a costly revamp of the health care system and whether to spend more to spark a nearly lifeless economy, it faces shrinking fiscal room to maneuver. With each passing day, the outlook for the government's finances grows dimmer.

Skyrocketing federal budget deficits increasingly are limiting the government's ability to take on new financial commitments. Investors also are starting to worry about something once unthinkable: that the U.S. government could default on its debts someday.

The federal budget deficit is the annual sum of what government spends beyond what it collects in revenues. This year's deficit is on course to balloon to a figure equivalent to 12 percent of the nation's gross domestic product, the total annual value of all goods and services produced. That's double the peak Reagan-era deficit, which was the post-World War II high until now.

A June study by the Brookings Institution, a center-left policy research group, found that current increases in spending and continuation of most George W. Bush-era tax cuts will combine to produce a 10-year deficit of $9.1 trillion. That will drive interest payments on the national debt — the total of accumulated annual deficits — to about 3.8 percent of the GDP by 2019.

Interest payments on the debt that high would surpass defense spending as a percentage of the GDP. Taxpayers would get nothing in return. All that spending on interest would go only to holders of government bonds who'd financed the past deficit spending.

"All of these figures are poised to rise further after 2019, implying that the situation is unsustainable," wrote researchers William Gale and Alan Auerbach, the Brookings authors.

Fear of rising federal debt is hardly new. It's intensifying now, however, because America's deep recession comes on the eve of retirement for 75 million baby boomers, those born from 1946 to 1964. The first wave of boomers already is reaching retirement age. Boomer retirement will strain federal health and Social Security spending as never before.

President Barack Obama often cites the looming fiscal crisis as one reason that he wants to revamp the health care system to create more competition and control costs.

However, budget experts both left and right fear that Obama is seeking to offset these new funding obligations by tinkering with the tax code on the margins, yielding what they call "phantom savings" that may not materialize.

"For anyone who has been here more than a few years, does anyone believe this is really going to be budget neutral?" Stuart Butler, a budget analyst for the Heritage Foundation, a conservative research center, said during a Brookings forum this month on the looming fiscal crisis.

Taxing the health plans of people who earn more than $200,000 may prove an attractive populist ploy, but it won't yield enough revenue to address the looming fiscal problems, said Diane Lim Rogers, the chief economist for the Concord Coalition, a bipartisan budget-watchdog group.

"Economists and tax-policy experts know how we would reform the tax system if we were to clean it up and make it a sustainable revenue system, and we know that more than how we would contain health care costs," Lim Rogers said in an interview.