The Commerce Department proposal isn't binding, but is intended to guide lawmakers and a White House group looking at issues of privacy and Internet policy.
The new report proposes the creation of a voluntary, but enforceable industry code of conduct to ensure that companies give consumers clear notice about what data is being collected and exactly how it is being used.
It would give consumers the opportunity to "opt out" of, or decline, some or all of that data collection. Consumers would also get the ability to correct errors in the information.
The code would also set clearer limits on the use of this information and would require companies to secure the data they gather.
In addition to broad industry-wide principles, the Commerce Department also envisions establishing specific codes of conduct for particular segments of the Internet ecosystem. Those could include social network sites, services that deliver location-based pitches to mobile devices and Web publishers and marketers that target ads based on a consumer's browsing activity and other online behavior.
The new codes would be binding on the industry. The Federal Trade Commission could take actions against companies that commit to abide by the codes and then don't comply.
And in what could prove to be one of the more controversial elements of the Commerce Department proposal, the codes would be developed by Internet advertising networks, Web publishers and marketers, social networking sites and other online services, as well as government officials, consumer groups, privacy watchdogs and others concerned about Internet privacy.
Those groups would work together under the guidance of a federal privacy office to be housed in the Commerce Department that would work with the FTC, the Executive Office of the President and other federal entities.