The paste command is outputing tabs instead of new lines when used with process substitution

The first command below produces each number on a separate line, and I would expect the second command to do the same thing because the only difference between the two is that we are using echo '1 2 3' and echo {1..3} (both of which produce the same output). **But, the second command produces the numbers that are separated by tabs instead of new lines. Why?** Furthermore, notice that the only difference between the second and the third commands is that we are passing the result to paste via process substitution, but without that, it shows the expected result, which could imply that it is a paste related issue, but I don't quite see what the issue is.

§ paste  /dev/null 
1
2
3

§ paste  /dev/null 
1
2
3

--- If it matters, here are the versions of the tools:

§ which tr paste
/usr/local/opt/coreutils/libexec/gnubin/tr
/usr/local/opt/coreutils/libexec/gnubin/paste

§ tr --version
tr (GNU coreutils) 9.1
Copyright (C) 2022 Free Software Foundation, Inc.
License GPLv3+: GNU GPL version 3 or later .

Written by Jim Meyering.

§ paste --version
paste (GNU coreutils) 9.1
Copyright (C) 2022 Free Software Foundation, Inc.
License GPLv3+: GNU GPL version 3 or later .

Written by David M. Ihnat and David MacKenzie.

§ bash --version
bash --version
GNU bash, version 3.2.57(1)-release (x86_64-apple-darwin20)
Copyright (C) 2007 Free Software Foundation, Inc.

§ sw_vers
ProductName:	macOS
ProductVersion:	11.7.10
BuildVersion:	20G1427

I am on macOS, but use GNU utils installed via brew. --- Addition debug information requested by comments with set -x active:

§ paste <(echo {1..3} | tr ' ' '\t' | tr '\t' '\n')
+ paste /dev/fd/63 /dev/fd/62 /dev/fd/61
++ echo 1
++ echo 3
++ tr ' ' '\t'
++ tr ' ' '\t'
++ tr '\t' '\n'
++ tr '\t' '\n'
++ echo 2
++ tr ' ' '\t'
++ tr '\t' '\n'
1	2	3

§ paste <(echo {1..3} | tr ' ' '\n')
+ paste /dev/fd/63 /dev/fd/62 /dev/fd/61
++ echo 1
++ tr ' ' '\n'
++ echo 2
++ echo 3
++ tr ' ' '\n'
++ tr ' ' '\n'
1	2	3

§ echo {1..3} | tr ' ' '\n' | paste
+ tr ' ' '\n'
+ echo 1 2 3
+ paste
1
2
3

And hexdump output:

§ paste <(echo {1..3} | tr ' ' '\n') | hexdump -C
00000000  31 09 32 09 33 0a                                 |1.2.3.|
00000006

§ echo {1..3} | tr ' ' '\n' | paste | hexdump -C
00000000  31 0a 32 0a 33 0a                                 |1.2.3.|
00000006