How do I cut 3 inch letters without the roller blade making an indention in the gumpaste?

Did you try decreasing the pressure? Sometimes you have to play with the settings to see what works best with what medium. eg sometimes you have to decrease pressure and slow down speed.

Are you talking about the rubber ring in the center. You can either cut it off or move it to the outside edge.

Yes the rubber rings...I will try that. I've just now bought the deep blade for my Cricut that I've had since Thanksgiving and not used for my cakes. Harder than I thought!