Despite all the outrage over outsourcing from Lou Dobbs and other protectionists, the practice of sending jobs to low cost countries like India has to date had only minimal impact on the U.S. labor market. But that may be about to change, according to a new survey from Merrill Lynch.

A full 72% of corporate CIOs surveyed by Merrill Lynch in the fourth quarter say they expect to increase their spending with external service providers--read outsourcers--in 2007. That's up significantly from 58% a year ago.

At the same time, the percentage of corporate IT budgets devoted to in-house staff salaries is starting to decline measurably for the first time, dropping to 37% in 2007 from 42% in 2005, according to the survey, released Wednesday.

To boot, CIOs in 2007 will allocate an additional 2% of their IT budget for spending specifically with offshore vendors like Wipro, Infosys, Cognizant and others, Merrill Lynch says.

But here's the key point: whether a company chooses to outsource to a domestic service provider or a foreign vendor, the fact is a good chunk of the work will likely end up offshore regardless. That's because U.S.-based outsourcers like IBM, EDS and CSC, along with "Bermuda-based" Accenture, are ramping up staff in India and sending as much work there as they can, as fast as they can.

Outsourcing doesn't yet automatically equate to offshoring, but we're fast approaching that point.

So with more CIOs looking to outsource, and virtually all outsourcers looking to India as their primary base of operations, we could be approaching a tipping point where the trend will begin to affect the domestic labor market in a meaningful way. U.S. tech employment is presently robust, Dobbs' hysterics notwithstanding, but these new numbers from Merrill Lynch bear watching.