Senate Votes to Prevent Fed Contractors From Outsourcing

Voicing anxiety about the flow of American jobs to foreign shores, the Senate voted to restrict federal contractors (search) from using tax dollars to relocate work abroad.

The 70-26 vote Thursday to insert the ban into a corporate tax bill (search) represented an early victory for Democrats, who have piled up a stack of proposals aimed at stemming American job losses to other nations. Democrats voted unanimously to back the ban.

Republicans were split over the restriction, though many said it would harm the nation's relations with foreign countries and eventually backfire.

"I think retaliation would be the order of the day," said Sen. Mitch McConnell, R-Ky.

GOP leaders succeeded in including one condition, that the policy not go into effect until the Commerce Department (search) certifies it wouldn't harm the economy or exacerbate job losses.

Although a concession, supporters scored it as a victory. "They're going to have to stand up and make the case that outsourcing is a good thing," said Sen. Chris Dodd, D-Conn.

It also makes an exception for defense, homeland security and intelligence contracts deemed necessary for national security. More than two dozen nations who have joined a government procurement agreement, including Britain and Japan, would also be exempted.

If signed into law, the ban would stop contractors from moving work offshore in cases where the government privatizes work once done by federal employees, when the federal government contracts for goods and services, and when state governments contract work using federal funds.

Auditors at the General Accounting Office (search) reported separately Thursday that 59 of the 100 largest publicly traded federal contractors have a subsidiary in a foreign tax haven. Studies have suggested that American multinational corporations can use foreign subsidiaries to shift their income and lower their taxes.

The GAO, Congress' investigative arm, cautioned that the existence of a subsidiary in a tax-haven country does not prove tax evasion.

"The question is how much tax dodging is going on," said Sen. Carl Levin, D-Mich. "This issue cries out for additional investigation."

The top contractors with subsidiaries in foreign tax-havens include Halliburton, Boeing Co., Exxon Mobil Corp. and General Motors Corp.