Because of the winding down of the wars in Iraq and Afghanistan, the Army is already planning a reduction of forces (mainly by attrition)of around 80,000 soldiers over the next five years. However, because of high unemployment in the civilian job market - especially among veterans - lawmakers have tried to slow the pace of these cuts and force the Army to keep more soldiers, which would keep unemployment down. The problem - Congress doesn't want to increase the money to the military to allow it actually afford to keep on these extra soldiers.
Like many things in the government, the accounting is complex and difficult to entirely understand. Most of the money for the wars in Iraq and Afghanistan (and support the 80,000 extra soldiers) have come from OCOs (overseas contingency operations), it was with this money that the Army planned it's five-year cut of 80,000 soldiers. However, since Congress doesn't have oversight over OCOs, they want to close this account now instead of waiting until it expires at the end of fiscal year 2013. This would deny the Army the money to support the current force, and force the Army into sequestration.
Sequestration would force the Army to cut 100,000 soldiers in five years, in addition to the already-planned 80,000 cuts. These cuts would force the Army to practically halt re-enlistments, while cutting enlistments back, as well as increasing the frequency of deployments and forcing the Army to make due with much older equipment. Such reductions in force would also cause problems in the years to come, as tens of thousands of quality soldiers would be forced out of the military.
According to Chief of Staff Gen. Ray Odierno, "sequestration...will affect both the active and reserve component...It depends on what balance we pick. But what I talk about a lot is: 70,000 out of the active, 30,000 out of the reserve; 80,000 out of the active, 20,000 out of the reserve. Some number around there is what we would expect.”
The biggest problem facing the Army isn't the impending budget crisis, but the fact that such a crisis comes in an election year. The reason for these cuts is that Congress failed to come to a deal last year, triggering a $1.2 billion cut in government spending. The Obama administration has issued an objection to Congress' intervention in the Army's downsizing plan, but the House Armed Services Committee, which creates the framework for budget plans involving the military, opposes many of the Obama administration's policies.