Sources: Defense Budget Cuts Prevent Two-War Force Structure

Defense Secretary Leon Panetta is scheduled to roll out more than $260 billion in defense budget cuts later this week in what sources familiar with the Pentagon's strategy review say will show the U.S. will no longer be able to fight two ground wars simultaneously.

That's a concern that comes after Iranian leaders on Tuesday decided to take another jab at the U.S. military, warning that it no longer allow U.S. aircraft carriers through the Strait of Hormuz.

Iran could now read as weakness and permission to do what it wants, knowing that 91,000 U.S. troops are currently engaged in Afghanistan, a ground war that will last at least until 2014.

White House Press Secretary Jay Carney on Tuesday said the Defense Strategic Review, of which President Obama has been "deeply involved," recognizes that "we are at a turning point after a decade of war" and new "challenges and opportunities" call for reshaping priorities.

But, he added, "The important part of this process is that the strategy come first and the reductions ... are driven by the strategy. They're not across the board. They're not random," he said.

At issue are politically sensitive cuts -- including how to shrink salaries, retirement benefits, the nuclear arsenal, warships, airplanes and the overall size of the Armed Forces. The budget will go from $530 billion to about $ 472 billion next year -- that is roughly the size of the defense budget in 2007.

Right now, the U.S. Army employs 570,000 soldiers. The plan would reduce its end strength by at least 10 percent. Many think it could go as low as 480,000 U.S. soldiers, roughly where it was on the eve of Sept. 11, 2001. The Marines are slated to cut about 25,000 from active duty.

About a third of the current defense budget goes for salaries, health care and retirement benefits.

"In the last 10 years, pay and personnel costs have doubled," according to Arnold Punaro, a former Marine major general who served as director of the Senate Armed Services Committee for 13 years and sits on Panetta's Defense Business Board. "They've gone up 50 percent for relatively the same size force."

Punaro, the former executive vice president at Science Applications International Corporation (SAIC), estimates the Pentagon supports 2.3 million retirees. The U.S., he says, spends $100 billion a year on their pay. There are 1.4 million men and women serving on active duty.

"If an ever-increasing percentage of the defense budget goes to those people that are no longer serving, we're now paying people for 70 years that only serve 20 years," Punaro said. If that continues, "we will have a hollow military. There's no doubt about it."

According to some estimates, health care makes up $53 billion a year. A decade ago, it was $19 billion, according to William Winkenwerder, who served as assistant secretary of defense for health affairs under Defense Secretary Donald Rumsfeld.

Military families are paying "about $500 a year for their health care benefits, while most people in the private sector pay more than that amount in a month," Winkenwerder said.

Industry experts agree that in order for the system to be sustainable, rates for military health care must go up.