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Government contracting can be tricky. If the government pays $1m to an american company, they'll recover a significant amount of that through taxes. So the actual cost to the government wasn't actually $1m. If it's paid to an indian company, they won't.

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This is exactly true. Not only in corporate taxes, but payroll taxes as well. So, literally, up to 35% of each contract goes back to the government in one form or another (whether directly or through overhead personnel salaries), hence the "buy American" thing in contracting with the government.

What's the opportunity cost? If the contractors would have been sitting on their hands, then the 35% argument rings true.

If they would have had taxable earning anyway, it doesn't matter.

(Of course, that's from a purely economic point of view. We are talking about politics here.)

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