Letter to Wall Street Journal

The reference to Google's "30% tax rate" [Did Google Make Taxes a Scapegoat? February 3, 2006], is misleading. Although not unique to Google, it is worth pointing out that two-thirds of Google's tax expense is pure fiction. The company deducted stock-based compensation of $1.2 billion dollars on its tax return in 2005, which lowered taxable income to the point where its actual tax rate was only 11%. In accounting parlance, the stock-based compensation expense in the tax return is a permanent difference because it never shows up in the income statement. Nevertheless, to hide such a low tax rate from the public, FASB allows these stock option laded companies to debit the tax expense line and credit shareholders' equity with the tax effect of the stock-based compensation deduction taken in their tax returns. Accountants will readily recognize that both the debit and credit ultimately ends up in shareholders' equity, making it a wash and nothing more than pure window dressing. Two-thirds of Google's tax expense, which is reported in the cash flow statement as a "tax benefit," is not an expense by any stretch of the imagination.

Albert J Meyer

Email Exchange with a Financial Journalist

“Thank you for your kind response... to paraphrase Edmund Burke, evil prospers when we stand by and do nothing. Not to belabor the point, but I fell off my chair this week when Larry Ellison was quoted saying that he doesn't like to sell his Oracle stock (USA Today article).

For the record, during the period April 19, 2004, to January 30, 2005, Larry in 93 transactions sold ORCL stock, realizing approximately $1.1 billion. His trusts and foundations realized another $685 million through the sale of ORCL stock during the same period. If it were not for stock options, CEOs would not be able to extract such wealth from their companies and then publicly boast that they don't like selling stock. American workers unwittingly purchased a big chunk of that stock through their 401(k) plans (indexing), hoping to retire wealthy. In buying ORCL stock, they were merely paying his wages - some wage! You can't retire wealthy yourself, with this kind of investing. You are merely transferring your hard-earned wages to someone who has taken advantage of the system the legislators have dropped in his lap. Shame on USA Today for not checking the facts.

Albert Meyer

Followed up by:

“I beg your pardon. In the previous e-mail, I reported Larry Ellison's stock sales going back to April 19, 2004. Had I gone back to March 1, 2004, I could have added another 28 transactions realizing another $330 million. During the same period, his trust/foundation realized another $430 million. All for a grand total of approximately $2.5 billion.