This is not a government issued internet ID. The proposal is for introducing a trusted authority which is authorized to issue unique digital certificates that can be used as a trusted identity source over the internet. Just like the driver's license binds the person it's been issued to to the bearer via the picture and can be used as a proof of identity. You can (but you are not mandated to) use it to sign in your bank for example, and the bank will know that it is you on the other end, not someone who stole your identity. The certificate will be probably on a smart card or other physical device that is protected. Number of countries around the globe are issuing such certificates that can be stored on their driver's licenses (which are also smart cards), passports or national ID cards. It's just like unforgeable digital signature. You still can stay anonymous or not use it unless you want to but you have the option of securely identifying yourself to your bank or other entities accepting those. Also each US Department of Defense has a similar card that gives or denies access to government resources.
This said, there are so many potential problems with this...
