"When I reflect on the state of American competitiveness, my feeling of pride is mixed with deep anxiety," he told members of the Senate Health, Education and Labor Committee.
Gates said changes must be made to improve education and immigration procedures if the U.S. is to remain competitive. He said because of outdated visa policies, top talent is being driven away from U.S. firms, adding that he sees the impact every day at Microsoft.
"I cannot overstate the importance of overhauling our high-skilled immigration system," he said. "We have to welcome the great minds in this world, not shut them out of our country."
Gates cited figures that show the U.S. has a low rate of high school graduation relative to many other countries.
To make America more competitive, he urged Congress to begin by setting a goal to have every U.S. child graduate from high school, and to double the number of science, math and technology graduates by 2015.
"Unless we transform the American high school, we limit the economic opportunity for millions of Americans," he said.
He also called for more investment in job training for workers.
"As a nation our goal should be to ensure that by 2010, every job seeker in the United States workforce can access the education training they need to succeed in the knowledge economy," he said.
On a positive note, Gates said U.S. universities are still regarded as the best in the world.
He also said the opportunity for innovation in the computer and health fields is much greater than most people realize.