I would suggest the federal government empower states in order to reduce its own size. while this sounds like a lofty goal, the following measures would make this possible:
(1) Reduce federal domestic operations by empowering states to take the direct responsibilities.
(2) Eliminate direct taxation of citizens, and instead tax states. This will empower states to tax the citizenry on behalf of the federal government, simplifying operations and allowing state-level innovation. Rather than states and the federal government enforcing the existing redundant tax systems, this tiered approach would allow the federal gov't to enforce its taxation of the states with a small, efficient IRS while the states may use their existing tax-collection infrastructures to collect both the state and federal taxes.
Both of these suggestions would reduce the cost of government and the complexity to comply with tax law, which currently costs businesses a significant amount of money that could otherwise be invested in growth.