Although property taxes do give people incentives to build smaller homes, this is much less serious than giving people incentives to create less wealth of all kinds. Furthermore, property taxes on real estate cannot cause people to move land elsewhere, so the negative effects on local prosperity are less. In addition, property tax codes are far simpler than income tax codes, so some people who would otherwise be tax lawyers and accountants are freed up to do other, more productive, things. Of course, this is not to say that property taxes are not onerous and should be levied, but it does imply that cutting them should have lower priority than cutting income taxes. Cutting off tax revenues puts pressure on government to forego spending increases and ultimately to actually make spending cuts.
Deficits are promises to pay for current spending with future tax revenues.
To the extent that current deficits succeed in curtailing government's tendency to increase spending, they are beneficial to the limited government agenda. Nathan Hale, the American patriot who was hanged by the British for spying, was unrepentant. So great was his love for a nation founded on principles of liberty that he was willing to make the ultimate sacrifice. If he could see the affronts to liberty in our current state of affairs, he would probably want his life back. Dismantling the IRS and the analogous state agencies would be a major step in the direction of establishing the kind of government that was his dream.