“I tend to view the mortgage deduction as a mechanism our society has used in the past with the intention to aid and facilitate the family unit in obtaining housing,”
And yet ... it is really a benefit for those willing to go into debt. The higher the interest portion of the monthly mortgage, the higher the tax benefit. Smart negotiation to get a lower interest rate is not rewarded. Paying off the mortgage or buying cash doesn’t yield any reward, so actually OWNING a home does not get favorable treatment at all. This deduction ENCOURAGES you to owe as much money as possible and keep as little equity in a home as possible. Would you like to rethink your position that it didn’t contribute to the mortgage crisis ?
You seem to misunderstand the meaning of the deduction.
What actually happens is that you are not taxed on the part of your income which you use to pay your mortgage interest, because the mortgage lender will be taxed on it.
If you're paying $1,000 a month in interest, and you could be paying $500 a month instead by getting a lower interest rate, the incentive is that $500, not the fact that the $1,000 or $500 that you're paying out is not considered taxable income when it comes in.
Paying off or buying in cash is still better, simply because you're not paying $1,000 a month in interest. You might wind up paying $350 more per month in income tax, but that still leaves you $650 per month further ahead than you would be if you had a mortgage.