The Indiana legislature is considering a bill that would fully phase out the property tax over the next few years. This is the sort of bad idea that comes before state legislatures from time to time, resurrecting long-discredited policies. So it's worth explaining once again why, if you kept only one tax, it should be a property tax.

House Bill 1288 will probably die for a simple reason: Replacing lost property tax revenue would drive up the sales tax to 12% or 15%. That may work in Gatlinburg, Tennessee, where taxes can be exported to visitors. It won't work so well in, say, Seymour, Indiana.

Still, there are even better reasons to keep the property tax. To understand why, you need to know what makes a good tax system in the first place.

There's no such thing as a perfect mix of taxes. We have the choice to tax wealth, earnings and consumption through some combination of property, income and sales taxes. Every type of tax is one of these, whether it’s a liquor or gaming tax, or an entrance fee into a state park.

A good tax system has certain characteristics. It should be predictable, not swinging wildly from year to year. It should grow with the economy. It shouldn't twist people's economic decisions, making them buy or sell things just to dodge taxes. It should treat similar activities the same way. And it should raise enough revenue to pay for government services.

The best approach is to tax almost everything, and at a very low rate. In economics jargon, a good tax system is stable, elastic, neutral, equitable and adequate.

Eliminating property taxes moves away from every single one of these goals.

Property taxes are the most stable and elastic of all taxes. They move very little across a business cycle and grow revenue as a local economy expands. They also shrink revenue as a local economy contracts. It is an arithmetic truth that eliminating property taxes makes a tax system less stable and less elastic.

Property tax is a tax on wealth and supports the most critical local public services. These are, in turn, the most responsive to local voters. Most benefits associated with property accrue to local taxpayers due to higher quality local government services.

The most compelling argument for maintaining property taxes is the equity issue, and here's where it gets personal.

The best way to think about equity is to understand that, in the U.S., young people are poor and older people have wealth. Eliminating property taxes is a wealth transfer from young to old — from people starting out to people who've already accumulated assets. It happens in two ways.

The first way is that replacement taxes like sales tax will skyrocket. That burden falls heavily upon younger families, who need to buy homes, furniture, kids’ clothing and the like. The second way would be if the property tax cuts reduce local services — schools, public safety and other things that tend to matter more to young families.

A property tax cut is a wealth transfer from younger, poorer families to older, wealthier families. Those poor people aren't some random folks you've never met. They're your kids and grandkids.

The elimination of a property tax is perhaps the single most disruptive tax change, as it affects both prices and behavior. Home prices reflect both the taxes you pay and the services you get. Change either one suddenly, and home prices go up or down.

Eliminating property taxes would, in the first few years, cause home prices to increase significantly, as a Federal Reserve study explains (see https://www.minneapolisfed.org/research/institute-working-papers/property-taxes-and-housing-allocation-under-financial-constraints). My estimate is that eliminating property taxes in Indiana would cause a one-time, 8% to 10% spike in home prices. Over time, as public service quality declines, those home prices will drop.

The elimination of property taxes would create a one-time bubble in housing prices. I’d recommend not getting into that market. But, there’s no need to give young families that advice. They are already flocking to higher-tax places with good schools — outside of Indiana.

Finally, property tax is the hardest tax to avoid. That makes it far more fair than our sales or income taxes, which have more holes than a sieve. An important point here is that Indiana’s highly differential treatment of businesses and households contributes to the frustration about property taxes.

If you come to Indiana and build a $250,000 home that's likely to be on the tax rolls for a century, our property tax code will extract roughly $1,800 per year in perpetuity. If you build a small restaurant, with $1.8 million in equipment, you pay nothing. Ever.

If you are frustrated, even angry, about property taxes, the problem isn't the tax itself. The problem is who has better lobbyists.

Fellow taxpayers, that is not us.

Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.