CSM has an article with a broad discussion on current military spending and various proposed changes. It's really a fairly absurd situation. The article notes that we will spend $667b in the next year. It mentions that the Task Force on a Unified Security Budget proposes $53b in cuts, and $40.5b in additional spending. It also discusses the proposed base closings. In inflation adjusted dollars, we are spending more on defense than we have since WWII. Adding to the absurdity of the situation, Donald Rumsfeld does want to make cuts (as per the base closings) to manpower at a time when Iraq and Afghanistan have stretched manpower perilously thin, thus leaving Congress in the position of opposing the one budget-slimming measure of an otherwise aggressively spending administration (not to mention the always pork-barrel sensitive matter of base closures).
I think any analysis of the defense budget needs to start from the recognition that the U.S. military is light-years ahead of any other in the world. Our nuclear arsenal itself is enough to ensure that U.S. will never be attacked by any nation-state. And there is not a conventional military on the planet that the U.S. could not steam-roll over. In light of these things, Rumsfeld's plans for a lighter, slimmer military make a lot of sense. However, it doesn't seem feasible to make these cuts while we are digging deep into the reserves and National Guard to keep enough troops in Iraq.
But it seems there must be places to cut, given that we had 500,000 troops in south-east Asia with a lower defense budget than we have now. Perhaps there is something to the quote in the article that we're doing a very poor job of getting reasonable prices from defense contractors (on whom our military has grown increasingly reliant). Certainly there seems to be a disturbingly incestuous relationship between the public and private military sectors (starting in the VP's office). Some of the big ticket programs (nuclear bunker-busters) seem wasteful and unnecessary as well.
Unfortunately the current politics of national defense are such that neither party could feasibly propose any significant cuts. Moreover, it is difficult to see how this could change any time soon. There was no significant focus on fiscal problems in 2004 by either side, and it seems that budget deficits would need to take an immeasurably higher profile in order to compete with the terrorist-mania that governs politics. There is a very real argument that our fiscal situation poses a greater threat to American dominance and security at the present time than terrorists, but I don't see that as a politically salable idea. It's a bloody mess, no doubt about that.