FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. I am pleased to be here with you today.

We come together at a time when America is experiencing enormous progress and prosperity that few could have imagined at the beginning of this Administration. We have had our first back-to-back surpluses in 42 years. We are in the midst of the longest economic expansion in our nation's history. And the benefits of this expansion are being felt all up and down the economic ladder. For the first time in a generation, the purchasing power of wages is now rising even for the families in the bottom 20 percent of wage earners and unemployment is at its lowest level in 30 years.

This prosperity is being fueled by the Information Revolution, of which all of your companies are at the forefront. Information technologies and the Internet have ushered in an economic transformation as profound as that of the Industrial Revolution of the 19^th century.

In this economy, information technology industries and firms constitute less than 10 percent of our employment, but have contributed almost a third of our nation's economic growth over the past several years. Information technology has been the largest single factor in the remarkable increase in productivity, which has given us a high rate of GDP growth with very low unemployment and low inflation. It has helped make the United States a high performance economy, powered by technology, driven by ideas, rewarding the value of innovation, flexibility and enterprise and attaining ever better living standards for its people.

As we consider the challenges and opportunities presented by this new economy, I would like to talk to you today about what role the Federal Government is playing, and must continue to play, to ensure that the U.S. both continues its economic prosperity and maintains its leadership in the crucial technologies that have brought about this prosperity. Specifically, I would like to touch on four critical areas of Government focus:

• Pursuing sound economic policies
• Promoting policies that instill confidence in the Internet
• Creating the legal and regulatory regimes that promote the growth of e-commerce
• Ensuring the inclusion and participation of all Americans in the new economy

Let me begin with the first of these: pursuing a sound economic policy.

A key component of pursuing a sound economic policy is the maintenance of fiscal discipline. Our current economic prosperity has stemmed from the determination of President Clinton and Vice President Gore to stop a generation of public borrowing and forge a new national consensus around sound budget policy.

In this time of fiscal plenty, some might be tempted to dissipate the fruits of our efforts over the last 7 years. Yet, if we as a country-families, businesses and government-are to take maximum advantage of this moment, we cannot take our good fortune for granted. It would be unwise to provide massive tax cuts that would deplete a large part of what is now only a projected surplus. It is our responsibility to use today's gains to ensure that we are able to meet tomorrow's needs.

The cornerstone of such a policy is debt reduction. Reducing publicly held debt delivers substantial benefits to the pocket books of American families:

• It means that less of the savings of Americans will flow into government bonds and more into financing capital investment for American businesses and homes for American families.
• It means that we will be less reliant on borrowings from abroad to finance American investment.
• It means that there will be less pressure on interest rates than there would otherwise have been, and therefore lower borrowing costs for businesses and lower interest payments for American families.

We need to continue to exercise fiscal discipline, and retire debt, to keep the longest economic expansion in our history going strong.

Continuing to improve our own economic well-being also requires sustaining and deepening our international engagement. Your companies all conduct business in many, many countries across the globe. You have seen that in the new global economy, the economic well-being of each nation is enormously affected by the economic well-being of the rest of the world, and this will become even more true over time. As a result, we must continue to push for open markets and free trade.

Our commitment to the open world trading system was reaffirmed a week and a half ago by the House of Representatives when it took a significant step in support of opening markets by passing a bill that would grant China permanent normal trade relations. Both sides in the debate had honorable differences over the merits of the proposed legislation and, indeed, the legislative process is not yet complete. Yet, if enacted, this legislation will allow the United States to participate fully in the mutual gains from China's joining the WTO and opening its markets to trade and investment. Further, by engaging the world's most populous country, we increase the chances that it will become a more open, more democratic and more constructive member of the global community in the 21^st century.

This Administration has stressed the need for the private sector to lead on Internet policy, avoided unnecessary regulation, and drafted policies that recognize that the Internet has no borders. Nevertheless, Government also needs to help instill confidence in the Internet by ensuring that appropriate measures are taken to protect (1) consumers, (2) infrastructure, and (3) our security interests.

First, if electronic commerce is to live up to its full potential, consumers must have confidence in their ability to maintain their privacy. Americans should not have to forgo participating in our modern economy to preserve their privacy.

This Administration believes that we must keep our privacy protections as up to date as our newest technology. President Clinton and Vice President Gore have stressed that Government and private industry both have important responsibilities to create effective privacy policies.

For the Government, this means exerting leadership in areas involving especially sensitive information, such as medical information, information concerning our children, and our financial data. We are in the midst of significant technological changes and consolidation within the financial sector. As a result, financial institutions can both gather and analyze more information about consumers than ever before, as well as target a wider range of products and service to those individuals at less cost.

We must ensure that consumers can enjoy the substantial benefits of such market changes with the same level of confidence in the financial system that they had before. The challenge is to preserve the benefits of competition and innovation that information sharing and technology have brought while protecting the ability of consumers to preserve their privacy.

We took an important step toward meeting that challenge in the financial modernization bill that the President signed last fall. For the first time, that law gave Americans the right to know what their financial institutions do with their information, and the right to say "no" to those institutions sharing information with outsiders. As important as these changes were, the President announced in signing the bill that they did not go far enough.

To achieve the President's mandate for greater protections, the Treasury, the White House, and OMB developed a legislative proposal, which the President announced a month ago. This proposal extends consumers' rights to choose whether their information may be shared among affiliated companies; it gives consumers the right to access and correct information about them held by financial institutions; and it provides special protections for especially sensitive information about an individual's personal spending habits and medical information held by affiliated financial firms.

In other areas, we believe that private industry has a responsibility to regulate itself to ensure that individuals' privacy is protected. In a recent address, the President put two simple questions to business leaders:

• Do you have privacy policies you can be proud of?
• Do you have privacy policies that you would be glad to have reported in the media?

Working together, we can ensure that Americans access the Internet's full potential without fear of sacrificing their privacy.

Second, if electronic commerce, and in particular electronic finance, are to continue to thrive in this new economy, then consumers must feel that not only is their privacy protected, but also that their financial information and delivery systems are secure.

The public has grown more aware over the past year of the growing threat to our economy posed by attacks on our computer and information systems as a result of highly publicized virus attacks, such as the so-called "Love Bug" virus.

This Administration has recognized and focused on the threat to our information systems for some time. In 1996, the President commissioned a blue ribbon Commission on Critical Infrastructure Protection, which recommended a comprehensive program based on public-private partnerships and information sharing to protect critical infrastructures against cyber threats.

The Commission's report was the basis for a Presidential Decision Directive issued in May 1998 that sets forth a national goal of creating within five years the ability to protect our nation's critical infrastructures from damaging attacks.

Further, the Presidential Directive recognized that since the private sector owns and operates the largest part of the nation's information infrastructure, the private sector will have to assume a major role in protecting that infrastructure. The financial services industry's new information sharing and analysis center is a prime example of how industry can take the initiative envisioned by the President. Other sectors of our economy would do well to follow suit.

Lastly, a further part of our responsibility to provide assurances for the appropriate use of new information technologies is prudent oversight of encryption and military technologies with the minimum restrictions and burdens on businesses and individuals.

In keeping with this aim, the Administration removed most export controls for encryption products last year. As a result of this simplified approach, exported encryption products now do not need a license once they have been approved in a one-time review, except for encryption products used by governments or with military applications. Also prohibited are the exports of encryption products to countries that are state sponsors of terrorism.

The Administration has also worked to liberalize export controls, while at the same time ensuring against the diversion of military technology to inappropriate uses. Toward this goal, the Administration three weeks ago announced that there will be significant improvements in export licensing regulations and procedures for defense-related technologies. These improvements, in some cases still being crafted, apply to export destinations in NATO and other allies. They include bulk licensing for the export of satellites, data-sharing between U.S. and foreign defense companies, and the use of U.S. components in defense contracts with a foreign company.

The next critical function Government must play is to create the legal and regulatory regimes necessary to promote the growth of electronic commerce. The Clinton-Gore Administration has worked to create an environment in which the Internet has flourished, adding efficiencies and dynamism to our economy.

To illustrate, I will discuss three key areas in which the Administration is ensuring our laws and institutions keep pace with the rapid changes in e-commerce technology: (1) digital signatures, (2) electronic payments, and (3) Internet taxation. I will then briefly describe some of the initiatives the Treasury Department has taken to lead by example in these areas.

First, the Administration believes that passage of electronic signatures legislation is crucial for the further growth of e-commerce, and we have been working for several months to achieve this result. Approval of a good electronic signatures bill will one of the most important actions we can take to advance the digital economy and promote our future prosperity.

We need to provide legal certainty for the use of electronic signatures and records to give both businesses and consumers the confidence they need to bring electronic transactions into all areas of the economy, from purchasing software to taking out a home mortgage. Throughout this process, however, we have sought to ensure that important consumer protections enacted over the last several decades are as strong in the electronic world as in the paper world.

We are very pleased that House and Senate conferees reached an agreement last week, and expect the report to be filed, adopted, and sent to the President soon.

Second, the payments area represents one of the great opportunities of the Internet. Technology could ultimately provide us with the means to permit safe, secure on-line movement of money.

Despite the expansion of the Internet into so many areas, there is no legitimate option at this time for businesses to pay each other over the Internet. Most e-commerce shoppers use credit cards, which involve a 2-6% expense to the seller and work on-line only for certain classes of payments.

One of the greatest attractions of the Internet is the way it makes possible person-to-person communication and commerce even where the people have no prior relationships and the geographic distance between them is great. Our current payment systems simply were not designed to support this type of dynamic commerce.

To narrow this gap, payments need to be accompanied by transaction information that allows one to purchase, collect and store data electronically. We need an efficient, standards-based mechanism for exchanging information across different automated processes. Buyers, sellers and financial institutions also need to know with certainty that their orders were received and payments logged.

Third, regarding the very sensitive and very contentious issue of taxation on the Internet, we need to be sure that we do not discriminate against sales on the Internet and thereby impede the growth of e-commerce. We need to ensure that governments finance themselves in a way that does not impede the growth of the Internet. We must also ensure that the Internet does not become a tax haven that deprives governments of the revenues necessary to fund essential civic services, such as education, police and fire protection. And we must find a way to meet the challenge of achieving that in a manner that establishes a level playing field between the old economy and the new economy.

In furtherance of those goals, the Administration supports a permanent ban on taxes on Internet access and an extension of the moratorium on discriminatory and multiple taxes that was contained in the Internet Tax Freedom Act. We also support a permanent ban on customs duties on international electronic transmissions.

The current debate over taxation of goods and services sold over the Internet stems from a Supreme Court ruling that states cannot require out-of-state sellers to collect sales taxes unless the sellers have a physical presence within the state, such as a store. As a result, under current law, taxes on out-of-state purchases, including those made on the Internet, go largely untaxed. Although e-commerce is still a small percentage of total retail sales, the Commerce Department expects it to grow dramatically in the coming years. State and local governments are concerned that their revenue base will be undermined. At the same time, traditional retailers are concerned that unequal tax treatment would put them at a competitive disadvantage vis-a-vis e-commerce.

Because the current debate is important to the national economy, the Administration has been working actively as an honest broker to try to achieve consensus between industry and State and local government officials on Internet tax issues. Over a year ago, Congress created an Advisory Commission on Electronic Commerce to make recommendations on these issues. The Commission succeeded in achieving consensus on the need for simplification of the widely differing sales tax rates and definitions of taxable and non-taxable items employed by the over 6,000 taxing jurisdictions in this country. A group of more than 40 Governors under the leadership of Utah's Mike Leavitt has pledged to begin work on this effort.

The Commission did not, however, achieve a sufficient majority needed to make a recommendation on the more pressing sales tax collection issues. In fact, one coalition of Commissioners proposed further limits on the states' ability to collect sales taxes. The debate now moves to the Congress. There are a number of proposals to extend the existing moratorium and the Administration will work with Congress on them. However, until we see the results of the States' simplification efforts, we should not change the existing rules regarding sales tax collection which have allowed E-commerce to flourish. It is essential that we move with care and consideration in changing those laws, because they go to the core of our system of government as well as the continued vitality of the Internet.

At the Treasury Department, we recognize that it is important to lead by example, and thus we have invested much time and resources in thinking about how we can adjust the way the government conducts its business to adapt to rapid advances in information technology. I am pleased to tell you that we have had significant success using new technologies. In some areas, we are ahead of the private sector.

Treasury, through FMS, runs one of the largest payment collection systems in the world, with more than $1.3 trillion or two out of every three dollars of U.S. government revenue now collected electronically. Individuals can pay their taxes on line. More than three-quarters of all government benefit payments are now made electronically. So are almost sixty percent of payments to vendors.

We also are the world's largest issuer of smart cards. This year we will issue close to a quarter of a million smart cards at U.S. military installations throughout the world. We also are developing or testing a variety of new programs, including digital cash, secure Internet e-mail for the delivery of digital checks to vendors, and ACH debit authorizations over the Internet.

Sales of Treasury debt, both retail and institutional, also take advantage of new technologies. Auctions of Treasury securities are now entirely electronic, as the last paper bidders were recently moved to an Internet-based system. Consumers holding Treasury securities through the Treasury Direct program can make purchases or reinvest on line or through an automated phone system. Even Savings Bonds can now be purchased over the Internet.

We have learned a great deal through such pilot programs, and will continue to implement and expand them. We plan to share with industry the lessons we learn at a conference or another forum that will allow stakeholders to address barriers to e-commerce on the Internet.

The last point I would like to discuss today is our responsibility to ensure that all Americans are included in the prosperity and benefits afforded by this rapidly changing new economy. In order to do this, we need both to invest in educating and training our workers and to bridge the oft-discussed "digital divide."

We need to continue investing in our people to improve the productivity of the American workforce in the Information Age. This Administration has already invested substantially in education and training: we have increased the Pell Grants; the work-study program, the AmeriCorps program, and the HOPE scholarship, which is a $1,500 tax credit for the first two years of college along with further tax breaks for junior and senior year and for graduate school. Through these programs, we have in effect made two years of community college available to every American. We must continue to make this kind of meaningful investment to ensure that every American has access to high quality education. By properly educating and training a high skilled workforce, we will best ensure our continued success in the new global economy.

The first and primary policy for increasing the availability of high skilled workers must be focused on increasing the education and training of U.S. workers. However, at times U.S. businesses need additional access to the international labor market to maintain and enhance our global competitiveness, particularly in high-growth new technology industries and particularly in tight labor markets. To this end, the President has proposed a balanced approach of a significant increase in the number of H-1B visas.

At the same time, it is critical that we take this opportunity to correct long-standing injustices currently affecting many immigrants already in this country. The President's proposal thus includes significant provisions to protect and prepare the U.S. workforce, and measures of fairness and equity for certain immigrants already in the U.S.

In addition, it is critically important that we all work together to ensure that the benefits of the advances in technology are extended to all.

Access to computers and the Internet, and the ability to use this technology effectively, are becoming increasingly important to fully participate in our country's economic, political and social life. Yet, there is strong evidence of a gap between those individuals and communities that have access to the tools of the Information Age and those who do not. Unequal access to this technology because of income, education level, race or geography could deepen divisions within American society.

Let me briefly offer some specifics to better describe extent of the digital divide:

• Better educated Americans are more likely to be connected. Sixty-nine percent of households with a bachelor's degree or higher have computers, compared to only 16 percent for households that have not completed high school.
• The divide between high- and low-income Americans is significant. Eighty percent of households with an income of $75,000 or above have computers, compared to 16 perecnt of households earning $10,000 to $15,000.
• Whites are more likely to be connected than African-Americans and Hispanics. Forty-seven percent of white households have computers, compared to 23 percent of African-American and 26 percent of Hispanic households.

President Clinton has made it a major priority to bridge this digital divide, and this Administration has a strong record of working to ensure that every child is technologically literate. Our efforts have included:

• Increased educational technology funding by over 3,000 percent-from $23 million in FY94 to $766 million in FY2000.
• Establishing the $2.25 billion "E-rate" to connect schools and libraries to the Internet.
• And working to expand access to technology to people in under-served communities and to people with disabilities.

Despite these successes, there remains much to do in order to give all Americans the skills they need in this new economy and to achieve the President's goal of making Internet connections as common as telephone connections today. As part of our continuing efforts to achieve these goals, the Administration's budget proposal includes three tax incentives to promote computer training for workers and to increase the number of computers in libraries and technology education centers in low-income areas.

Many of your companies already contribute generously to addressing the critical issues of our society, and for this we thank you. Several information technology companies have been leaders in this effort, establishing charitable foundations, donating computer equipment to schools and inner-cities, and launching teacher and worker training programs. Yet, regardless of how much you have done, I encourage you to do more-not merely because it will benefit those being left behind, but also because you will benefit as well. Ultimately, an Information Revolution that fails to include large parts of the American people will fail every one of us.

Although the challenges we face are considerable, they are dwarfed by the scope of the opportunities before us. We are in for an exciting ride through cyberspace as the most basic ways in which we transact and interact, communicate and educate, are transformed by new information technologies. Working together-with the proper prudence, protections and innovation-we can best ensure that the U.S. continues to enjoy prosperity in the new global economy for years ahead.