Let’s say someone who entered the military as a commissioned second lieutenant gets “busted down.” What rank does he then become?
You don’t get demoted below second lieutenant, but you won’t exactly find yourself in line for a promotion very soon, either.
Civilian.
Officer ranks are not like enlisted ranks. Officers don’t get ‘busted’, but they can be passed over for promotion and eventually may be forced out of the military. If court martialled, an officer can be sent to prison, forfeit all pay and allowances, and receive a dishonorable discharge.
OIC, Mess Kit Repair Depot, Fort Huachuca, Arizona
Commissioned officers cannot be reduced in rank via nonjudicial punishment (NJP) or even by court-martial. They can, however, be dismissed from service (which is a punitive discharge that is equivalent to a dishonorable discharge) or administratively separated from service.
On the other hand, while commissioned officers cannot be “busted down,” neither do they get second chances. A [junior] enlisted person might possibly be able to recover from a reduction in rank or other punishment received via NJP by subsequently getting their act together and continuing their military career.
A commissioned officer taken to NJP will either be immediately separated from service, or will never promote and will be administratively separated from service after failing to promote. The chances of a commissioned officer ever being promoted after NJP or court-martial is essentially zero. Note that a commissioned officer cannot remain in service at the same rank–it’s “up or out.”
What are some examples of things that can lead to that kind of punishment?
Pretty much anything that a civilian criminal might do: theft, murder, arson, rape. Additionally, there is treason, disobeying orders and desertion.
There is nothing lower than a second lieutenant. 
Also, having people who work for you doing these things likely does not bode well for your career. A number of Air Force generals have been cashiered because their units had major cock-ups or failed too many inspections. As I recall, one general was fired recently because there was suspicions that funds set aside for PCSes (basically, the cost of airmen moving to a new base when they get reassigned) were being spent inappropriately. Note that in none of these cases did the General himself do anything wrong short of the utterly unforgivable crime of not leading his men in such a way that these problems were avoided.
It’s also a tradition in the Air Force that Officers In Command of Finance sections (the shops that handle payroll) keep a set of Service Dress blues all ready to go in case they get “called on the carpet” by a high-ranking officer for some problem his section had getting peoples’ pay straight.
Put it another way: If a ship is lost at sea, it is tradition for the Captain to be court martialled. If the ship ran aground, he will likely be punished and kicked out. If the ship was torpedoed in battle and sank, his punishment is less likely unless he was torpedoed due to a serious error on his part. If the ship is attacked by Godzilla out of nowhere, his name will likely be cleared with minimal fuss. But he is always court martialed, because he lost his ship.. Mind you, in this case, the court martial is also a chance to review the case and officially clear the officer’s name if it really wasn’t his fault the ship had a chunk bitten out of it by a sea monster and sank.
EDIT: I never actually stated the point I was trying to make: An officer’s job is to lead men. As Captain Kirk said in Star Trek VI, an officer is responsible for the actions of the men under his command. If his men screw up, he obviously led them poorly.
When I was in basic training (during the Spanish-American War :)), I was told that a certain sergeant was previously a brigadier general, but after being passed over for promotion three times, he elected to be an em for a few years to qualify for a larger pension rather than being booted out. I was further told he retained his same pay. Does anyone have the straight dope on this?
That is not possible.
MAS*H-inspired question: could you stay on at your current rank as a doctor in the service if you managed to offend a higher-up somehow yet were still a genius in the operating room?
ISTM a BG (holding an actual regular BG rank, not a temporary “operational rank”) who dead-ended would simply be moved to the Retired Reserve List when and if it suits the needs of the service. The service time/age requirements for a BG should put him/her over the pension entitlement cutoff by the time it becomes mandatory to get out.
If an officer has a temporary “operational” higher rank posting s/he may be “busted” from the nominal higher rank back to his/her lower regular/permanent grade if s/he messes up at the higher post, e.g. Henry J. F. Miller.
In the past it was not unknown to have the situation of someone who had risen from the enlisted ranks on an “Army of the United States” commission, as opposed to a “United States (Regular) Army” commission, serving in wartime as a junior officer, then upon a peacetime reduction in forces reverting to his Regular Army enlisted status because his officer slot simply disappeared from the books, and sticking around if he was close to earning a pension entitlement. I knew a now deceased gent who went through this.
We just had a high profile court martial where a Captain was convicted and was taken down to 2nd Lt and dishonorably discharged.
So it can happen. Capt Semrau prior to CM.
The U.S. Navy has two types of officers - line officers and staff officers. Line officers are general command-type" officers, staff officers are specialists…doctors, civil engineers, etc. A staff officer can command a hospital, a construction battalion or whatever, but cannot command a ship. Do the other branches of service make this distinction, and are staff officers given some slack in NJP, or in the “move up or move out” department?
While the OP may have been asking for specifically US-oriented answers, I note that not every country has this “up or out” progression model. In Canada it is possible to remain at the same commissioned rank for many years, whether in the Regular or Reserve Force. A colleague of mine in the maritime (regular) force has been at the Captain level (called Lieutenant in the navy) for about 19 years. Not for disciplinary reasons, but because he’s happy to stay in a job that calls for his particular skills but doesn’t entail promotion to Major (Lt Cdr). And far from kicking him out, after (IIRC) 16 years in rank, he was selected for a subsidised advanced degree program, meaning he’d be in the Forces for the two years it took to get his MSc at the military college, and four more of obligatory service beyond. That’ll take him pretty close to retirement, I believe – still wearing the same rank.
On the reserve side, there are definitely people who hang around for ages; there are plenty of career tracks that max out at Captain – I know two Captains with over 32 years of service (not all at that rank).
In both of these cases, the individuals provided valuable skills in an occupational category that needed them, and continued to benefit the Forces. Tossing them away would have meant losing that knowledge and experience, and in none of the three cases could they have been easily replaced by new people; it’s not like they were blocking advancement for young up-and-comers. Sometimes it’s good to have a few village elders among the young warriors 
Didn’t Admiral Kirk get busted down to Captain? But maybe the rules are different in the 23rd century (or whenever).
To clarify my previous statement, change this to: “Note that an active-duty commissioned officer in the U.S. military cannot remain in service indefinitely at the same rank–it’s ‘up or out.’”
There is a maximum time in service for various officer ranks, but these can be extended for various specialties (such as physicians). In addition, different maximum times in service apply to reservists.
If I’m not mistaken, Captain Semrau was in the Canadian armed forces.
My comments were applicable to the U.S. military. Sorry if I over-generalized.