The money is taxed, it goes to the federal government and then wasted on pet projects for political cronies.
Frankly, the example you put above is wrong anyway. When someone sells a cup of coffee, it is NOT income. First, you must take out the cost of the coffee, the coffee pot, the ulities needed to make the coffe, the payroll needed to pay the person to make and sell the coffee. See, the government IS taxing the money used to buy the coffee so they ARE taxing the money.
Silly man. You don't have a clue do you?