I am still not sure how the IRS is losing tax money. I understand the 1099 is not paying unemployment and workman's comp but they are also not able to collect from them. Is the government saying these are a profit center?
There may also be some float on the withholding between bi-weekly/monthly payments and quarterlies but they are going to get their money. FICA is the same and the 1099 even pays taxes on the other 7% because it is not deductible like it is for the employer.

That only leaves the employee expenses that are not deductible and become deductible for the 1099. Since they changed the 2106 rules, employees usually take a bath on vehicle reimbursements. Employers generally pay far less than the IRS allows and you can't really recover that since 1986. The same is true of employee supplied tools, licenses, education, PPE and supplies.

Greg Fretwell