WASHINGTON — The inability of Congress to pass a federal budget could result in smaller-than-expected pay raises for military troops next year, and if automatic spending cuts are triggered by further gridlock, military benefits could be next on the chopping block.

Defense Secretary Leon Panetta and Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey will recommend to Congress that pay increases be limited to 1 percent in 2014, rather than the 1.7 percent that was previously approved, a defense official said Wednesday. Pentagon officials say the change would save $470 million in 2014 and more than $3 billion total by 2018.

Congress will decide whether to follow the Pentagon’s recommendation and uncouple next year’s military pay from the Labor Department’s Employment Cost Index, which is related to cost of living, according to a defense official who spoke on the condition of anonymity.

“It is not a pay cut,” said the official, who noted that civilian military employees have worked under a federal pay freeze for two years. “The military is doing its small part to help with the nation’s budget problems.”

The Defense Department must control spending increases because Congress has not passed a budget to fund government operations in 2013, officials say. A continuing resolution passed last fall and set to expire March 27 has kept federal operations running, but it caps DOD spending at a level below that of the federal budget proposal.

Military members, more than one-third of the federal workforce, got a 1.7 percent raise this year, and DOD had proposed raises of 0.5 percent in 2015, 1 percent in 2016 and 1.5 percent in 2017 in an effort to control long-term defense costs.

Although the distinction might matter little to servicemembers, Pentagon officials stress the reduced pay raise is not related to sequestration – a series of automatic budget cuts that include about $46 billion in defense spending cuts this year – scheduled to go into effect March 1.

Military pay is exempt from sequestration under an executive order issued by President Barack Obama. But should automatic cuts hit, military benefits – including housing and food allowances, medical coverage and tuition assistance – could be cut as well, Pentagon sources said.

Lawmakers have been scrambling for months to find fixes for the budget impasse and sequestration, promising to find a compromise before military programs and national security efforts fall victim to the budget fight.

But they remain bogged down in ideological differences over raising taxes and cutting social services. Congress narrowly avoided a financial meltdown early last month by delaying several budget decisions, but hasn’t made meaningful progress on any debt reduction plans since Republicans took control of the House in two years ago.

In a public statement Tuesday, Obama said he is still open to negotiations, but insisted that “modest reforms in our social insurance programs have to go hand-in-hand with a process of tax reform.” On Wednesday, Republicans on the House and Senate Armed Services committees offered their own plan – without tax increases -- as an alternative to sequestration as a counter-argument to the growing sense that Congress might simply allow the military cuts to happen.

Last week, both chambers passed a debt ceiling extension that included a mandate for Congress to pass a fiscal 2013 budget by April, or lawmakers own pay will be withheld.

Defense Secretary Leon Panetta, in a speech Wednesday at Georgetown University that could his last before his retirement, slammed Congress for failing to fulfill its “basic responsibility” of passing budgets.

Members of Congress “have postponed action and instead have fallen into a pattern of constant partisanship and gridlock and recrimination,” he said.

Panetta said many members of Congress have a “So what?” attitude “that says, ‘Let’s see how bad it can get’ in order to have the other party blink.”

Failure to act could have devastating effects on the country’s defense and economy, he said. The Pentagon has implemented a hiring freeze and started laying off temporary workers, and as many as 800,000 civilian employees could be furloughed for up to 22 days, effectively facing 20 percent salary cuts, he said.

Training, flight hours and America’s naval presence would also be reduced, Panetta said.

“This is not a game. This is reality,” Panetta said. “These steps would seriously damage the fragile American economy and they would degrade our ability to respond to crisis precisely at a time of rising instability across the globe. …

“This is no way to govern the United States of America.”

Leo Shane III contributed to this story. Twitter: @ChrisCarroll_ Twitter: @jhlad

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