Defense Secretary Leon Panetta appears before the Senate Armed Services Committee. (Ben Kamisar/Medill)

WASHINGTON – Defense Secretary Leon Panetta warned Senators Tuesday that a failure to compromise on deficit reduction plans could jeopardize national security, leaving a “hollow” military in its wake.

Panetta defended a Pentagon budget that requires $487 billion in proposed cuts over the next decade. He insisted that a smaller, leaner and more agile force will better suit the nation’s current defense needs. But he said that any additional reductions, including possible automatic cuts in line with August’s debt-ceiling deal, could prove disastrous for defense interests.

The Pentagon Monday requested $525 billion for fiscal year 2013 as part of the president’s proposed budget, a 2.5 percent decrease in spending.

These cuts were mandated by August’s Budget Control Act of 2011, which set limits on discretionary spending for the federal government. The act stipulated that if Congress failed to slash an additional $1.2 trillion in spending by January 2013, the inaction would automatically trigger $500 billion more in sequestration cuts from future defense budgets.

“Sequester also takes place on the domestic side of the budget and very frankly, our national security is dependent not just on the national defense budget,” Panetta told the Senate Armed Services Committee Tuesday. “It is dependent on the quality of life we can provide for our citizens.”

Pentagon Budget: Comparison of Top Investments. Click for larger image

The proposed decline in defense spending comes as the Pentagon pivots national security interests toward the Middle East and East Asia. A leaner, more agile force will have both the technological capability and size to still confront multiple enemies, Panetta said.

But Sen. John McCain, top-ranking Republican on  the Armed Services Committee, said the Obama budget puts “short-term political considerations over our long-term security threats.”

The Arizona Republican said President Barack Obama’s is holding military funding hostage by threatening sizable cuts in 2014 if  taxes are not raised in his 2013 budget. McCain also fears plans to scale back shipbuilding and reduce troop levels to cut spending could jeopardize American military interests.

“I am seriously concerned about how we arrived at this point,” McCain said. “By any objective assessment, the worldwide threats to [the U.S.] are not shrinking.”

“The administration has not led,” he added. “For the sake of national security, Congress should.”

Defense spending would decrease by a quarter-trillion dollars over the next five years, according to the budget. The new plan would shrink the military by more than 100,000 troops by 2017, as quick-striking special forces play a more prominent role.

“We will no longer be sized for large scale, prolonged stability operations,” said Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff. “We cannot simply return to the old way of doing things.”

The Pentagon’s request for 2013 outlined a 23 percent decrease in spending for the conflict in Afghanistan and the wrap up of operation in Iraq. That would decrease war funding from $115 billion to $88.5 billion. While cuts are also expected in money going to Afghan forces, Dempsey said the lower funding would not stunt their growth as an independent fighting force.

Dempsey said that the U.S. will withdraw 23,000 troops from Afghanistan by the end of the summer, with Afghan National Security Forces expected to assume security responsibilities for two-thirds of the country.

The military plans to leave Afghanistan entirely by the end of 2014, “transitioning from a war-time footing to a readiness footing,” Dempsey said.

“We need to reset and refit, and in many cases replace, our war-torn equipment,” he said.

Along with reduced troop strength, the Defense Department plans to phase out old systems such as Navy cruisers without ballistic missile defense and outdated transport aircraft. It will put more focus, meanwhile, on cybersecurity and improvements to electronic warfare technologies such as sensors, radar and missile defense systems.

Despite the austerity measures, the military will increase service members’ pay 1.7 percent the coming year. Pay raises will slow in 2015. The Defense budget also calls for an eight percent drop in health care spending from that of the 2012 fiscal year, which runs through Sept. 30.

Department of Defense Budget Breakdown for Fiscal Year 2013. Click for larger image.

Panetta said the Pentagon is not preparing for sequestration – automatic cuts — in 2013. He said he only sought cuts this year because “it’s the law.” He believes further budget reductions in 2014  would force defense officials to use a “meat-axe” approach while slashing funding, putting national security at risk.

With troops out of Iraq and the war  in Afghanistan winding, leaner defense budgets will not lead to a drop off in military strength, Dempsey said. And though current Pentagon cuts are tolerable in today’s security climate, he warned that additional reductions next year would not be in the national interest.  “I don’t believe this budget incurs unacceptable risk,” Dempsey said. “I will tell you that I am prepared to say that sequestration would propose unacceptable risk.”