In a move that could have significant implications for financial markets, the Biden administration on Thursday proposed increasing the capital gains tax rate for individuals earning over $1 million annually. The plan, part of a broader fiscal strategy to fund social programs and reduce the federal deficit, would raise the top capital gains tax rate from 20% to 39.6%, aligning it with the highest ordinary income tax rate. The announcement sparked immediate reactions on Wall Street, with the S&P 500 dipping 1.2% and the Nasdaq Composite falling 1.8% in afternoon trading. Analysts warn that such a change could lead to accelerated selling of long-held assets in anticipation of the tax hike, increasing short-term market volatility. "This proposal, if enacted, could significantly alter investment behavior, especially among high-net-worth individuals and institutional investors," said Lindsey McGuire, a senior tax strategist at Raymond James. "We may see an uptick in portfolio rebalancing and profit-taking as investors look to lock in gains at the current lower rate." The White House defended the measure as a necessary step toward closing the wealth gap and ensuring the ultra-wealthy pay their fair share. The increased tax revenue is expected to help finance key initiatives in the president's economic agenda, including expanded child care, education, and climate programs. Treasury Secretary Janet Yellen emphasized the importance of tax fairness in a press briefing. "For too long, our tax system has favored wealth over work. This proposal ensures that those who benefit the most from economic growth also contribute proportionally to our shared prosperity." Republican lawmakers and some centrist Democrats have expressed skepticism about the plan’s potential effects on investment and economic growth. Senator Joe Manchin (D-WV), a key swing vote, said he remains "concerned about the timing and magnitude" of the proposed increase. Meanwhile, financial advisors are urging clients to review their portfolios and consider strategic adjustments ahead of any potential legislative action. "Until we know whether this passes and what the final version looks like, it's a time for careful planning, not panic," said McGuire. The proposal must still pass through Congress, where it is likely to face significant debate and potential amendments. However, its introduction has already injected a new layer of uncertainty into markets navigating inflation concerns, interest rate expectations, and geopolitical tensions.