Ending such "abuse," according to Mr. Obama, could save US taxpayers tens of billions of dollars over the next 10 years – money badly needed to help reduce looming deficits.
Getting Congress to approve such changes might be difficult, however. Big multinational corporations will fight hard to block the portion of Obama's plan that applies to them, as they claim it could put them at a disadvantage in comparison to foreign competitors.
"President Obama's proposals should only be considered in the context of broader tax reform that is designed to increase the competitiveness of US companies," said John Castellani, president of the Business Roundtable, a Washington association of big US firms.
Treasury Secretary Timothy Geithner and Obama announced their proposed changes at a mid-morning White House press event. The administration's basic goal is to end "indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by," said Secretary Geithner.
The move to target individual tax dodgers has significant international support. But the US is virtually alone among nations in taxing the overseas profits of its domestic corporations. Now, Obama would like to see that tax applied more strictly.
In 2004, the most recent year for which data are available, US multinational corporations paid about $16 billion of US tax on $700 billion of foreign active earnings, according to the White House. That is an effective US tax rate of about 2.3 percent.
Of the 100 largest US corporations, 83 have subsidiaries in nations judged by the US to be tax havens, according to a January 2009 Government Accountability Office report cited by Obama.
In the Cayman Islands, one mailing address alone houses 18,857 corporations.
"I've said before, either this is the largest building in the world or the largest tax scam in the world," said Obama.
Under current law, US firms can take immediate deductions on their US tax returns for expenses used to generate profits overseas. But at the same time, they can defer paying US taxes on those foreign profits, until such time as they repatriate those profits to the American home office.
Obama's proposal would bar firms from taking deductions for their expenses until they pay tax on the offshore profits. The change, which would take effect in 2011, would raise $60 billion in its first eight years, estimates the White House.
The administration also is proposing to make it more difficult for corporations to shift earnings from one foreign subsidiary to another. It is calling on Congress to pass a package of disclosure and enforcement changes intended to make it more difficult for wealthy individuals to hide their cash overseas.
And the administration's new budget will contain funds to hire 800 new Internal Revenue Service employees dedicated to overseas tax enforcement, announced the president.
Tightening loopholes for individual tax evaders and adding resources for international enforcement would be good moves, according to Rosanne Altshuler, codirector of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.
"These are changes that should be made," says Ms. Altshuler.
But the situation in regard to the proposed changes for corporations is more complicated, she says.
Most countries tax activities that occur only on their own territory.
If the US curtails the ability of companies to defer their overseas taxes, and leaves in place the current 35 percent tax rate to which income is subject, the result could have unintended consequences.
"More US firms might be acquired by foreign firms. There would be more incentive for start-ups to incorporate outside the US," says Altshuler.
Business groups are already lining up against the Obama proposal. The changes could hit hard some of the largest and most politically powerful companies in the nation, such as Coca-Cola and General Electric.
The companies argue that curtailing their ability to defer tax on foreign profits would give their foreign competitors a built-in financial advantage.
Some powerful members of Congress reacted cooly to Obama's proposals.
"Further study is needed to assess the impact of this plan.... I want to make certain that our tax policies are fair and support the global competitiveness of US businesses," said Sen. Max Baucus (D) of Montana, chairman of the tax-writing Senate Finance Committee.