A new tax regime being drafted by US Democrats is set to provide relief for middle-income families while repealing President George Bush's tax cuts for wealthier citizens, and hitting private equity and hedge funds with new tax rules altogether.

The US Congress chairman, Charles Rangel, said they were obliged to tackle the unintended consequence of the Alternative Minimum Tax which set out to capture 23m more middle-class families next year, US reports said.

The AMT was designed decades ago to prevent wealthy citizens from avoiding tax but has also gradually impacted on middle-income families because it failed to take inflation into account.

Rangel has pledged a solution by 'simplifying the tax code' and instilling a greater 'sense of fairness' in the system.

This could include repealing Bush's signature tax cuts for the top 1% of Americans as well as new rules on the way offshore hedge funds and private equity income are taxed.

The Senate finance committee also heard presentations yesterday on the impact on investors of increasing the tax rate on the carried interest income earned by partners in private equity groups and hedge funds.

Further reading:

Tax-Deferral Cap Weighed For Hedge-Fund Managers

Testimony Counters Private-Equity Tax Claims

U.S. Congress debates raising tax on private equity and hedge funds