I believe the funding levels in the BCA should be made permanent for the defense industry. In fact, I would argue that they should go further, although cuts should be made over a protracted time period. I think there are 4 ways that the Pentagon can implement defense cuts without dramatically reducing America's military and diplomatic capabilities.
1. Cut military pay. Quite frankly, given levels of experience and education, many in the military are overpaid. Back in the 90's there was a serious concern that private sector pay was outstripping military pay and as a result the military was losing out on human capital, and having trouble recruiting. Efforts were made to increase the pay, and they by and large worked. However, given a reluctance to cut pay during wartime, salaries have kept increasing and now easily outpace wages in the private sector. Getting pay and benefits under control would free up a huge amount of resources that can be used for more productive purposes. This applies to government contractors as well. In an economy with 7% unemployment, the military won't have many problems recruiting.
2. Stop appropriating the same amount to all agencies. The Marines, Army, Air Force, Navy all get funding according to a formula that has been in place for decades. This formula has not changed, meaning that despite changing priorities, the army still gets roughly the same percentage of defense spending as it used to. Given a pivot to Asia, and an extreme reluctance to have american troops on the ground, the Navy clearly should be prioritized above the Army or marines.
3. Rely more on reservists. America's reservists, thanks to the wars in Afghanistan and Iraq, are better equipped to fight than ever. It is also much cheaper to maintain a reservist unit than an active one. The idea that we need or can have a military that can invade a country at a moments notice is a farce. Cuts in personnel and equipment should take place among active units, while reserve units should be maintained. This will enable the US to have the largest and best equipped fighting force possible, for the lowest cost. The trade off is time. But in a world of austerity, we simply can't afford to have a huge military read to go overnight. It's expensive and not particularly useful.
4. DO NOT DO HIRING FREEZES! You would think this is common sense, but i guess the military is a part of government so common sense can be elusive. A serious problem that often occurs after cuts and hiring freezes is that 10-20 years down the line, you have a gap in qualified personal. If you do not hire new captains today, there will be no one to promote to major tomorrow. Any personnel changes should take place across to board, to all level of seniority. Simply freezing current hiring will only result in a dearth of qualified personnel down the line.
Of course, the military continues to operate as of the BCA cuts will be rolled back. They submit budgets well above what congress has said it can appropriate under the BCA. As a result, instead of cuts being made in a thoughtful and surgical fashion, cuts are made in a mechanical fashion with no regard for strategy or effectiveness. The military should recognize that these cuts are here to stay, and should have a well defined strategy for pursuing their priorities given the new levels of funding. I think these 4 points will help ensure that the US military remains the most effective fighting force on the plant, even with a few billion less to spend.