“Untagged” and “Default tag” are separate concepts.
Every SketchUp entity has a data slot holding a tag reference. The way SketchUp was programmed, it is not possible to add or remove this slot, it is always present and must contain some value. So, SketchUp reserves a special value for when no user-defined tag has been assigned, essentially meaning “referenced to nothing”. That special value used to be shown as “Layer0” in the GUI. Now it is shown as “Untagged”, which should be read as “not associated with any user-defined tag”.
"Default tag" is an operational setting that tells SketchUp how to assign the tag slot value when you add new geometry to the model. Or, in your specific example, when you delete the prior tag. As I wrote above, SketchUp can’t just magically remove the data slot, it has to put something there by default. It used to be called “Active Layer.” The little pencil icon in the rightmost column of the tags window lets you select which tag you want used by default, including the special “untagged” value.
As noted earlier, there are only special situations in which you should make anything except “untagged” the “default”, as this can lead to very confusing visibility issues. Deleting an existing tag would be an example, as you might want the selection to be referred directly to another user-defined tag instead of becoming untagged. In general, though, you should always leave the default set to untagged.