The reason why it's "removing options" is that the game gives bonuses to you if you leave the city as a puppet. It doesn't matter what that bonus is, merely that it exists. So, to play optimally you're (at least sometimes) supposed to not manage your captured city at all. That is why it's removing options from the player: a player should always be trying to play optimally, but that should not require relinquishing control of one's cities and conquests.
In the design of CIV, they considered creating a civic where you handed over some control of your empire to the AI, and got AI-like bonuses. They realized that wasn't a good idea, for the same reason: the human player needs to be in control of his/her civ, that's the point of the game. If I let the AI manage my cities or workers or missionaries, I do that out of convenience, not because the AI can do a better job of it.