Andrew, I have no problem with eliminating the capital-gains tax on home sales (or on other asset sales). But I do not think that propping up housing values is a sensible policy, even now, and I don’t think that a gradual reduction in the mortgage-interest deduction would have a ruinous effect on housing values anyway. The case for scaling back the deduction doesn’t grow weaker as marginal tax rates increase; it gets stronger, because the distortionary effect of the deduction is greater as those rates increase. (The case for scaling back the deduction and reducing the rate simultaneously grows much stronger.)
Means-testing of entitlements, meanwhile, comes in many flavors. Some forms—such as a cutoff point based on income in retirement after which no benefits would be paid—would indeed reduce the incentive to save. Most actual proposals would cut benefit levels based on lifetime earnings, which increases the incentive to save as high earners make up for lower benefits. If we want to balance the books, the alternative is to tax high earners more in order to keep their benefits from being cut. That doesn’t exactly reward thrift, or make sense in other terms.