By Jarrett Renshaw and Trevor Hunnicutt
WASHINGTON, April 22 (Reuters) - U.S. President Joe Biden will next week propose raising taxes on the wealthy to fund major investments in child care, universal pre-kindergarten education and paid leave for workers, sources familiar with the plan said.
Biden will propose raising the marginal income tax rate to 39.6% from 37%, and nearly doubling taxes on capital gains to 39.6% for people earning more than $1 million, according to the sources.
Details of Biden's "American Families Plan" are still being finalized, but the president plans to announce the measures next week before his first address to Congress on Wednesday.
Congress, which is deeply divided, must approve the tax measures included in the plan.
The proposal, which has been in preparation for weeks, triggered sharp declines on Wall Street, with the S&P 500 index .SPX down 1% in early afternoon after Bloomberg published a report.
Wealthy Americans could face an overall capital gains tax rate of 43.4% including the 3.8% net investment tax on individuals with income of $200,000 or more ($250,000 married filing jointly). The latter helps fund the Affordable Care Act.
Currently, those earning more than $200,000 pay an overall rate of about 23.8% including the Obamacare net investment tax.
Still, market observers said there was no small amount of doubt whether the proposal would make it through Congress.
"If it had a chance of passing, we'd be down 2,000 points," said Thomas Hayes, chairman and managing member at hedge fund Great Hill Capital LLC, referring to reports about hiking the capital gains tax.
(Reporting by Jarrett Renshaw, Trevor Hunnicutt; additional reporting by Andrea Shalal, David Lawder and Herbert Lash; Editing by Chizu Nomiyama and Cynthia Osterman)
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