Here is the problem with this argument--it focuses on the numerator of the discounted cash flow calculation, but not the denominator. The denominator contains the discount rate, which is the opportunity cost of capital. One can do an analysis based on before tax cash flows, in which case the denominator is the before tax OCC. The formula for before tax cash flow valuation is
Where CF is cash flow subscripted by time t, r is the discount rate, and E is the expectations operator.
But if one is going to take taxes out of the denominator, he must also take it out of the numerator. This means the ATDCF formula needs to be
The greek letter τ is the marginal income tax rate. If we examine this formula, we see that for small t, value does in fact decline with an increase in taxes. But now let us approximate a long term investment by looking at the perpetual annuity formula--one that has a constant cash flow for infinite t.
Now the formula for before tax valuation becomes:
Analogously, the formula for after tax valuation becomes:
Of course, the (1-τ) divides through, so the after tax and before tax values are the same.
But here is where I will add a kicker of my own: if it is really true that fiscal issues as creating uncertainty, resolving those issues should reduce the discount rate, and thus encourage investment. People such as Mr. Asness should welcome greater certainty, and the investment opportunities it will doubtless induce.