Back in 1991, following the collapse of the Soviet Union and the end of the Cold War, the Bush (41) administration announced a 25% reduction in military personnel levels. This began in 1992. However, in the years that followed, the cuts continued beyond the 25% level. According to this source:

In 1987, the Active Duty force level was about 2.1 million. Today, it is about 1.4 million-about one-third less.

If memory serves, the active duty force level before the 1992 reductions began was approximately 2 million. A 25% reduction would've taken the military down to about 1.5 million. It appears they implemented an approximate 30% reduction. That extra 100,000 or so personnel cut in the name of the "peace dividend" could come in handy about right now. It'll take time and a lot of money to rebuild those forces.

There's also the issue of using the forces we have more efficiently. For example, I've read that we still have about 80,000 military personnel stationed in Germany. Sorry, but that figure seems way too high. The days of worrying about the Soviet Army pouring through the Fulda Gap are over. We may need to keep some Air Force personnel there to keep some of the transport bases operational, but there doesn't seem to be a great need to maintain at least one Army division in Germany any more. The Army is studying this issue very closely. One possibility is to put minimal bases in the former Warsaw Pact territory and only have people pull short duty assignments there without all of the expenses of moving and supporting military families. This alone would save billions every year.

From an interview with the Chairman of the Joint Chiefs of Staff last week:

Hewitt: Let’s go back to readiness, General. Does the Army have enough Divisions and the Navy, sailors and ships and the Air Force pilots and planes—I know you have the readiness funding, but is there physically a big enough force for the number of challenges? You just detailed a few in the Philippines and Southeast Asia that are there.

General Myers: Hugh, a very good question and it gets a lot of debate today. Here’s how the Joint Chiefs of Staff look at that. The Navy actually wants to reduce strength. Admiral Vern Clark, the Chief of Naval Operations, thinks that he has savings there and he wants to save the tremendous dollars you put into personnel by actually reducing strength and becoming more efficient on the way to deploy and on some of the newer ships that require less man power. The Marine Corps and the Air Force, the Air Force actually wants to go up a couple of thousands of security forces mainly for some of the new security tasks. The Army is the one that is really stretched right now and what the Chief of Staff of the Army wants to do is make more of the Army usable for deployments, and he says that if you can give me an extra 30,000 people in my allocation—we call it in strength—but 30,000 people above what I’m authorized, I can use that as shock absorber while I essentially create more usable forces—25% more usable forces and that will take me a couple of years. Then we need to look at if I get more usability out of the United States Army, then it’s time to look at, given the security environment we see coming our way, should we continue to increase the size of the Army. Before we do that, we’ve got to make most effective an efficient use out of those forces that are already assigned. So, that’s the Chief of Staff of the Army’s view, the acting Secretary of the Army’s view, that the Joint Chiefs of Staff view. Right now, other than the thing that I said about the other services, we don’t think we need a strength increase. We have to wait and let’s and try and get more usable forces out of the taxpayers have given us.