By David Alexander
WASHINGTON (Reuters) - Defense Secretary Leon Panetta told lawmakers on Thursday the Pentagon - a department that prides itself on being ready for everything from war to natural disaster - had no plan at all for dealing with the real threat of another $50 billion in budget cuts next year.
Panetta called the second round of cuts due to go into effect next year "crazy" and said it was casting a pall over defense industries. But he indicated the Pentagon had not designed its new military strategy or its 2013 budget to reflect the looming reduction, part of a process known as sequestration.
"Look, we're not paying attention to sequestration. I don't think it's going to happen," Panetta told a panel of the House of Representatives during a hearing on the Pentagon's proposed 2013 spending plan.
"I don't think that Congress is going to allow it to happen. But at the same time, the threat that it may happen is something that's having an impact," he said, acknowledging it was casting a "huge shadow" over the military.
Whether Congress is willing or needs to avert a new round of cuts is open to debate. Defense analysts say post-war U.S. military drawdowns usually see Pentagon budgets fall by more than 20 percent, far more than the cuts currently envisioned.
The 2013 defense budget sent to Congress earlier this week begins the process of cutting $487 billion in projected defense spending over the next decade as required by the Budget Control Act passed by Congress last August.
The law also established a special congressional panel to come up with another $1.2 trillion in federal spending reductions by the end of the year. The panel failed to do so, triggering another $600 billion in national security cuts over the next decade beginning in 2013.
Few analysts believe Congress will ultimately allow the second round of cuts to stand, but many agree lawmakers missed their best opportunity to reach a deal last year when the special committee was meeting.
The issue is complicated by election politics, with little likelihood of action before the presidential vote in November, more than a month after the 2013 budget goes into effect October 1.
Officials say if there is no congressional action by late summer, the White House budget office will probably have to advise the Pentagon to begin planning for the additional cuts. That worries analysts and lawmakers, who say it leaves little time to prepare for a $50 billion across-the-board reduction.
Todd Harrison, of the Center for Strategic and Budgetary Assessments think tank, warned in a recent paper the Pentagon was being overly optimistic about not having to cut further. Previous military drawdowns have seen spending decline for a decade, not remain flat as in Pentagon's projections, he said.
"The failure to plan for the possibility of additional reductions in defense spending is a major shortfall in the new defense strategy," Harrison wrote. "The Pentagon can and should begin preparing for the possibility of more reductions, especially the prospect of sequestration."
General Martin Dempsey, chairman of the Joint Chiefs of Staff, told lawmakers there were good security reasons not to cut defense spending as deeply as the drawdowns that followed the Vietnam War or the Cold War.
"In the previous two we were entering a relative stability," he said. "I can't impress upon you that in my personal military judgment, formed over 38 years, we are living in the most dangerous time in my lifetime, right now, and I think sequestration would be completely oblivious to that."
(Additional reporting by Phil Stewart; editing by Todd Eastham)