For all the money that the President has pledged to spend to improve our domestic defense against terrorism, there's a gaping hole in the middle of our system that the Administration has not yet addressed: our means of personal identification.

State-issued driver's licenses and ID cards have become the identity documents of choice for everything from opening a bank account to boarding a plane, but the security of these documents has become a bad joke. False IDs are so common as to be considered a rite of passage for American teens. Not surprisingly, four of the five terrorists who crashed an airliner into the Pentagon had false IDs obtained in Virginia. Bogus IDs are also ever-more-frequently used to commit a host of other crimes, including identity theft, credit card fraud, and underage drunk driving.

The technology is readily available to end this reign of error and terror, by upgrading standard IDs into "smart cards" with computer chips, which include unique biometric data on the cardholder that is very difficult to forge or use unlawfully. The Progressive Policy Institute unveiled a detailed proposal this week to do just that. In "Modernizing the State Identification System: An Action Agenda," PPI senior analyst Shane Ham and PPI Vice President Rob Atkinson list the steps that Congress and the states should take to improve driver's licenses. Ham and Atkinson call on Congress to:

• Require states to issue "smart ID cards" containing digitally encoded biometric data specific to each holder, as well as a standardized hologram;
• Set national standards for initial identity verification;
• Accelerate the linking of state motor vehicle department databases;
• Provide grants and loans for additional state smart card applications;
• Upgrade the system for foreign visitors to create "smart visas"; and
• Create strict controls to protect privacy and prevent abuses.

The report also details what the states should do maximize the economic benefits of the new system:

• Issue digital signatures with smart ID cards;
• Develop and promote other government applications to take advantage of smart ID card capabilities;
• Facilitate access to the chip on smart cards for card holders to allow private organizations to place applications on the unused parts of the chip (e.g., digital cash); and
• Reduce or eliminate fees for first-time upgrades from old cards to smart cards.

The security benefits of the proposal are obvious: linking databases and putting encrypted biometrics on the card will make it much more difficult to get a false ID, or to create a fake ID with a computer and color printer. (Because states are free to design their driver's licenses and ID cards, it is often difficult for a grocery store cashier or bank teller in one state to determine if an ID card from another state is legitimate. A standardized hologram will solve that problem.) Moreover, linking driver's license information to a "smart visa" system will make it impossible to switch identities and much more difficult to adopt a made-up identity. When coupled with the extensive privacy protections advocated by Ham and Atkinson, the end result would be a safer nation without the more corrosive side effects of low-tech security measures, such as racial or ethnic profiling.

The benefits of upgrading driver's licenses go far beyond security, however. With state-issued digital signatures and extra space on the chip, a raft of digital government and e-commerce applications can grow. States can place everything from voter registration to electronic food stamps on the card, making their systems much more streamlined. Online transactions with state and federal government could be verified with the digital signature and a thumbprint scan. Once smart cards are issued, card readers and thumb scanners will become standard equipment on home computers. The cards will also offer a host of conveniences in the offline world, from the "trusted traveler" program that makes airport security less onerous to digital cash to pay for everything from parking meters and public transportation to washing machines in laundromats. States can charge businesses fees when citizens download private applications to the smart card, making the whole system self-financing. The efficiencies to be gained by both the government and the private sector are enormous, not to mention the savings to be gained by eliminating identity theft.

It didn't take the September 11th hijackings for us to know that the identification system is in desperate need of an upgrade. The only question now is whether we will do it with older, more limited technologies -- like magnetic stripes or "2-D" bar codes -- or with newer, more versatile technologies, like smart cards. Congressman Jim Moran (D-VA) has already opted for the latter, announcing this week that he will draft legislation based on the recommendations in the report. Smart ID cards are an idea whose time has come.