WASHINGTON (Bloomberg) The US Congress approved a $32 billion annual bill funding the Homeland Security Department, including a provision banning future contracts between the agency and companies that use overseas tax havens.

The House voted 386-0 for the package on Saturday before leaving to campaign for the November 2 election. The Senate hasn't scheduled a vote on the legislation.

With the bill, ``the government can respond to the threats where they exist,'' said Representative John Sweeney, a New York Republican who's a member of the Appropriations Committee.

The fiscal 2005 bill is $1.1 billion above the levels for fiscal year 2004, which ended September 30. The legislation includes $4 billion for first responders such as police and firefighters, $9.8 billion for border protection and $5.7 billion for transportation security.

Democratic lawmakers, including Representative David Obey of Wisconsin, said the bill didn't go far enough to increase airport and port security.

``If anybody thinks this is an adequate response to what we face, they're smoking something that's illegal,'' said Obey, the senior Democrat on the Appropriations Committee.

The bill would prevent Ingersoll-Rand Co. and other companies located in overseas tax havens such as Bermuda from contracting with the Homeland Security Department. The provision wouldn't affect current contracts.

The General Accountability Office, the investigative arm of Congress, said in a June report that US subsidiaries of corporations with headquarters in tax havens are able to shift income to their parent companies to reduce income subject to US taxes.

That enables the companies to offer lower bids on government contracts than competitors, the GAO said.

The Bush administration said that denying contracts to companies based on where they chose to incorporate may prompt trading partners to retaliate or question US compliance with World trade Organization rules.

Congress should lower the corporate tax rate to ensure companies stay in the US and can compete with companies located in countries such as Ireland, which taxes corporations at 12.5 percent, said Chris Edwards, director of tax-policy studies at the Washington-based Cato Institute, which advocates limited government and free markets.

The U.S. corporate rate is 35 percent.

``It's all just politics,'' Edwards said of efforts to block contracts. ``It's really is only a band-aid on a broader disease. The issue is competition.''

In addition, lawmakers rejected a $435 million U.S. airport security fee increase requested by President George W. Bush and opposed by airlines.

Since 2001, U.S. law requires airlines to pay annually an amount equal to carriers' security costs in 2000. The airlines say the cost was $315 million and have been paying that amount. The Transportation Security Administration, which took over the job of securing airports in 2002, said the carriers should be paying $750 million.

Bush, as part of his fiscal 2005 budget, asked lawmakers to force the carriers to pay the higher amount. AMR Corp.'s American, UAL Corp.'s United and other carriers are seeking to cut fees, salaries and other costs to hold down losses.

Airlines also collect ticket fees of about $1.7 billion a year to help pay security costs.