Well my welder doesn't use more than 20 amps that is why I am thinking of using 12 gauge off of the 10 gauge circuit/outlet.
Are you VERY sure of that? Welders can be something of a special case; but even so, that would be an unusually light-duty welder.
I have a 10 gauge circuit with a 20 amp outlet and breaker on that circuit.
Again, I have to ask, "Are you sure?" While I mean no insult, your comments to date in this thread don't exactly inspire confidence in your technical prowess. Normally, a 30-amp breaker would be installed to protect AWG 10 wiring, not a 20-amp one. In addition, there are tighter restrictions as to what sort of outlets (and how many of them) can be installed on circuits rated for 30 Amps or more.
As far as the breaker panel, what I meant to say is the service wire that comes from outside providing power to the panel to the buses in the panel is thicker than any of the circuit wires that feed off of it.
Well... Of course. But that's because the incoming service feeder has to supply ALL the current to ALL the branch circuits. More importantly, it is not connecting directly to ANY of those branch circuits; but rather, it is connecting first to a bus bar, which in turn feeds an array of circuit breakers (one for each branch circuit). Those branch breakers then protect the smaller wires used on those individual branch circuits.
That is what I meant as a step down.
OK. But that was far from clear from your description. It sounded like you were talking about splicing a heavy wire (presumably fed from a breaker appropriate to that heavy wire) more-or-less directly to a lighter one (for which the breaker would NOT provide adequate protection). That would be a
HUGE "No-No".