Some Democrats want to strip tax benefits from firms that outsource

The move, which is not yet law, was passed with a vote of 70 to 26, and would forbid the outsourcing of work on contracts paid for with federal funds.

Democrats say taxpayers' money should not be used to send jobs overseas.

Last month, presidential adviser Gregory Mankiw was heavily criticised for suggesting that outsourcing could help the US economy.

Defence exception

The policy proposed by the Senate would not take effect until the US Commerce Department showed a ban would not harm the economy or lead to more job losses.

It also makes an exception for defence, homeland security and intelligence contracts deemed necessary for national security.

It would take effect when the government privatises work once done by federal employees, when the federal government contracts for goods and services, and when state governments contract work using federal funds.

Democratic Senator Chris Dodd of Connecticut, who sponsored the bill, said outsourcing should not be subsidised.

"You may be able to do that with your own money. The question is, should you be able to do that with the taxpayers' money?"

Other Democrats want to strip tax benefits from American companies with offshore operations, or provide federal aid to workers whose jobs go overseas.

Political problems

The issue, and jobs in general, is seen by the Democrats as their main chance to win support away from Mr Bush.

Millions of jobs have been lost during Mr Bush's term in office, and there are accusations he has not done enough to ward off the threat of low-cost economies such as China and India.

Mr Mankiw said last month that outsourcing was "something that we should realise is probably a plus for the economy in the long run".

He later said he regretted the way his comments had been interpreted.

Meanwhile, Indian software industry association Nasscom has said it is hopeful recovery in the US economy will help to cool the backlash against outsourcing work to India.