And managers sometimes get paid partially in stock options. It’s not a special break for hedge fund managers, it just sounds good for the low info populist voters.
Non-qualified stock options are taxed as ordinary income when exercised. They are taxed in the same manner as compensation.
The “carried interest” income that the hedge fund manager received effectively allows their compensation for managing the fund to taxed as a capital gain not as compensation for services.
Why should the hedge fund manager providing management services be taxed in the same manner as an attorney providing legal services to the fund?