Washington, D.C. — In a move that could significantly impact investor behavior and stock market dynamics, the Biden administration on Tuesday proposed a substantial increase in the capital gains tax rate for individuals earning over $1 million annually. The proposed rate would rise from the current 20% to 39.6%, aligning it with the top ordinary income tax rate. The announcement, part of a broader push to fund new social spending initiatives and reduce the federal deficit, sent ripples through financial markets. The S&P 500 closed down 0.4% on Tuesday, while the Nasdaq Composite slipped 0.7%, as traders assessed the likelihood and potential impact of higher investment taxes. "This proposal, if enacted, would alter the calculus for long-term investment strategies," said Morgan Keegan, a senior economist at Evermore Capital. "It could lead to a short-term increase in selling pressure, particularly as high-net-worth individuals look to lock in gains at the current lower rate." While the White House emphasized that the increase would only apply to the top 0.3% of taxpayers, market analysts noted that capital markets are highly sensitive to tax policy, especially measures that affect investment returns. In Congress, the proposal faces an uncertain path. While progressive lawmakers have welcomed the plan as a step toward greater tax equity, moderate Democrats have expressed concerns about its potential impact on economic growth and investment. Republicans have uniformly opposed the measure, labeling it a tax on success. "This isn't just about taxing the rich — it's about disincentivizing the very investments that fuel job creation and innovation," said Sen. John Thune (R-SD), a ranking member of the Senate Finance Committee. The proposal also comes amid a busy earnings season, with several major tech firms set to report quarterly results this week. Analysts warn that increased tax uncertainty could overshadow otherwise strong corporate performance. "Investors are now juggling multiple variables: earnings, inflation, interest rate forecasts, and now tax policy," said Lisa Gomez, a portfolio strategist at Treadstone Investments. "Volatility is likely to remain elevated as the legislative process unfolds." The Treasury Department is expected to release further details in the coming weeks, and hearings in the House Ways and Means Committee could begin as early as next month. Until then, markets are likely to remain in a holding pattern, with traders watching Washington as closely as Wall Street.