Create new label should not happen inside a dropdown

in the Labels dropdown "Create new label" button causes the dropdown content to change into a stripped down label creator

inconsistent with other components - I don't believe we have other dropdowns that behave like this.
inconsistent with New Label page. No description field and color layout is different
confusing UI - why am I creating something in a Select dropdown?
tech debt. Needlessly complex stateful "page 1/2" code in already complex dropdowns

Clicking "Create new label" closes the dropdown and opens a modal
Modal contains New Label page contents, saving adds label to page