How are they going to determine what is HD? Some scholars get labeled denialists because they have different estimates for the number of Jews killed in concentration camps. Seems worrying to have FB moderators determining what's acceptable historical debate and what is wrongthink.
Holocaust denial is banned in Germany (same as swastikas by the way). It works really well. The only people complaining are literally people trying to twist perception of the arguably worst crime in the history of humanity, to make Germany look like a victim. FB is clearly doing the right thing here. Free speech has limits.
Not in America, it does not. You folks have "hate speech" laws, banned symbols, banned words, banned expressions, and used to have banned video games, music, and movies. The core of your legal system has the concept of "honor"/"dignity", which is inherently subjective.
The justification is always a variant of your thought, saying that it will only affect "bad people", with the very definition of that being heavily influenced by the aforementioned concepts.
Germans tend to defend the concept of filing charges against an individual for the crime of "insulting them" with similar logic - it's generally a nasty thing to do and only "bad people" will do it, therefore, it shall be punishable under the law.
Any limits to free speech are by definition on the famous "slippery slope". As others have called out, once the legal precedent is set, nothing stops politicians to expand it at their will, given that it is based on subjective judgment - history can be a great teacher - and I'd like to remind you that a much harsher version of the current German "social media hate speech" law just made its way through international media earlier this year. This law was justified with "a rise in right wing extremism".
I've said it before, I'll say it again: The ACLU, an arguably left-leaning organization, has famously defended KKK member's 1st amendment rights for those very reasons. They don't argue about the content - as an analogy to the HD topic, it should be easy to debunk with massive amounts of historical evidence - but rather about fundamental human (and, in the case of the United States, constitutional) rights.
Naturally, all those points apply to governmental censorship and not to a private entity. That being said, I don't believe in limits to free speech.