We are talking about risk-adjusted return. That's right. So as I long as expected risk-adjusted return is positive, a rational investor is supposed to invest regardless of the tax rate. I would think.
Imagine we bet $1 on a coin toss. The expected value for either of us is $0. Now imagine the winner is required to pay 10% tax on his proceeds. The expected value becomes (-$1.00 + $.90)/2 = -$0.05.
Also, as brorfred pointed out, capital losses are deductible, afaik.