Your return line can be smaller than your supply line but I would only go one size smaller. Theoretically, your return line should be able to return all of the fuel but realistically, even at idle the engine will consume a decent amount. Lets say you are idling the engine for awhile, long stop light or something. Your return is 1 size smaller. The regulator tries to send 80% of the fuel back to the tank (just an example, not sure of the percentage). The regulator is set at 7 psi, so regardless of before or after the carb, the incoming fuel is at 7 psi. The return line is a tad too small for the fuel needing to go back, this creates a restriction that remains constant and the regulator is already open. The result is that the return line would be under pressure and the incoming fuel might increase in pressure. By using the same size line, the incoming fuel can never go higher in pressure than your regulator's setting. Even if 100% of the fuel had to go back to the tank, the fuel line size wouldn't create a restriction and so worst case is the return fuel would be at 7 psi, the fuel pump would just be circulating fuel. With different sized lines, the return fuel could be at a higher pressure than the supply side. You could also see a pulsating fuel pressure on the supply side.