The Age asks a tough question: If Google knew its fourth-quarter tax rate was going to be almost 70% higher, did it have a responsibility to warn shareholders? Since Google could have seen weeks, if not months, ago that it was going to be hit with a 41.8% tax rate, far higher than the 30% forecast, should it have warned the board, which would have in turn been responsible for warning shareholders?

This is a nice anchor around the "Google miss" issue.

Amr @ Yahoo, etc, called it. But, as noted, so what -- shorts of Google have gone up significantly. And, of course it was going to happen, eventually, because as Google continued to walk on water, expectations would rise until it had to do something Really Phenominal to stay within expectations. As a VC on another blog I read commented, any of his portfolio companies would not be upset with only making 1.9$B this quarter.

But not, this is not the issue. Amr @ Yahoo's post was a bit more specific: it is more than the market raising its expectations of what a Normal Google Quarter should look like (30%). If you study what Google has been doing on the run-up to each quarter, it looks like it is deliberately acting to hit those expectations.

This is what really looks like what happened. If Google doesn't have enough accounting talent to completely understand their tax situation, someone should go to jail. Instead, to hit expectations in previous quarters, they borrowed against their tax rate. They previously reported taxes of 30%. But you only get to do that 3 out of 4 quarters. Then you get a tax rate of almost 42% to compensate.

Whenever the stock drops (as yesterday and today) there are lawsuits. This is generally the case because there are a lot of shady investor groups who find it easier to put off their constituants' wraith by passing the blame, and letting time diffuse their pain. But this idea is interesting -- if, as I said above, they deliberately moved their taxes at the expense of a later tax burden, should they have been explicit about it? A good financial analyst would have known about the tax burden of the quarter; but wouldn't necessarily know whether the company's projections were based on that. Which they were not.

The legal arguments as a whole make me a little queasy. As long as a company puts all the information in their forms, they should be granted some immunity; if analysts were truly independent and as smart as they claim to be, and had the time to do the work right, proper models could be constructed. People with enough effort and education can understand the liabilities and such of underfunded pensions, even off-book entities. But most can't.

The queasiness comes because these companies really have so much more regard for their profits and stock prices than being truly good capital representations. If I know what my tax burden is, spill it. Yes, it hurts in the short term, but on the long term, it works out better. If you make 1.9$B in a quarter, great! I should have a model, built based on assumptions that have been born out over time, and I can come up with reasonable expectations of future results. Periodically update me on what your new numbers are, and I can continue to understand what you may be worth.

We see this with Berkshire. As Buffett has pointed out in previous years, if some small number of the largest corporations paid as much in taxes as Berkshire, there would be no need for individual taxes. And despite that tax burden, Berkshire does pretty dang well. Google borrowed the best sounding ideas from Buffett's thinking, and the best defenses (no splits! no guidance!) and then took as many shortcuts and ego-based options as possible (hello B class! hello hitting numbers at any cost!).