I doubt either but it does cast Google in a bad light. Does anyone know if Google reads your SMSs as well as email?

That depends on whether you mean

* regular SMS/MMS messages sent from the Messaging app on Android, in which case: No, of course not. Those go directly to the cellular modem in the device. Or

* messages sent/received using Google Voice, in which case: Probably. These are scraps of data that live on Google's servers, just like data within Gmail/GTalk/et al. They have mp3 audio and text transcriptions of all your incoming voicemail that comes in through GV.

I would think Google Now would want access to your SMSs.

I've never seen it mentioned. Definitely email (package tracking, flight bookings etc) but never read SMS is tracked.

Well, on Android you can install TextSecure and have even a more secure messaging.

And replace the stock system with Cyanogen mod or similar and have a smartphone that won't be taking commands from the mothership.