It used to be that all interest was deductible…The MID is a factor when computing your AGI
In other words, “it used to be” that the government spent money to reward people who paid interest of any kind. Now they only spend money on people who pay interest on homes. That doesn’t change the concept that it is STILL government spending. And yes, once you use the IRS as a conduit to spend on government rewards, it’s easy to tap into other features of the IRS tax structure. However, it can easily be decoupled.
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In the case of a credit, the tax”payer”(hardly) gets a $5k check from the pocket of “real” taxpayers. In the case of a deduction, it’s just a question of how much of your own money you get to keep.
There you go again about “how much of your own money you get to keep.” 
But that said, I agree that there are two kinds of “tax credit.” There is a tax credit where the government looks at what you did, and they like it so much (say, you did solar panel research) that they spent 100% of that money back on you, or effectively gave it to you for free.* This is a “credit.” There is another tax credit where they look at what you did, they like it somewhat (say you gave to Salvation Army), so they spend 20% of that money back on you. This is a “deduction.” drummin, you can slice the semantics any way you want, but the fact remains that you paid your full taxes and they spent money back on you — separately — because they liked what you did. If it turns out that the government spends more on you than you put in in full taxes, what difference does that make in the concept?
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Okay, a third point on the “government spending” idea. You go to the store to buy a coffee. It’s $1.50. You give the clerk $20. Is them giving you your $18.50 in change “spending” on the part of the coffee shop?
Nope. The coffee shop doesn’t have a “right” to your $20, because they’re only selling you $1.50 of coffee. However, they do have the right to $1.50. So, let’s continue the scenario. You order $1.50 in coffee. You hand over your $20 bill. They give you $18.50 in change. Then they go to make your coffee, but you say, “Wait, I forgot, I brought my own mug.” They say, “Great! You’re eco-conscious! We like that! We’ll give you 5 cents back for the mug.” It’s a bit of a pain to open the register again, but they open it and give you a nickel. Effectively, your coffee cost $1.45, but it took two separate transactions: 1) you bought the coffee and got an $18.50 “refund,” and 2) they spent a nickel on you because you brought your own mug.
Now wouldn’t it have been easier if you had shown them your own mug when you ordered the coffee, instead of waiting until after you paid? Then they could have refunded you an $18.55 instead, and open the register only once. Of course it’s easier! That’s precisely why government rewards through the tax system, it’s one NET transaction. However, no matter what the mechanism is for payment, the coffee shop had made a separate decision to “spend” a nickel on you, to reward for bringing you own mug.
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*Instead of a 100% credit on the tax return, sometimes it’s easier to pay 100% directly. We just saw this happen in the Obama admin. Originally, renewable energy companies got a tax deduction, say 20%, because the tax code was the easiest way for the gov to spend 20% back on the companies. Then, Obama realized more people would do renewables if just gave away (spent) the money, and converted it to a direct grant. It’s still spending, the only difference is whether Obama was spending 20% or 100%.
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