hmmmm.... I am not really clear what you are looking for, but it sounds like you want to cut Type out of a tag and make it look like chipboard, then you can put it on some other backgound or leave it where it is cut out.
If that is close.....

then, what I would do, is to make a black tag in the shape you want on a transparent background. Then select the font for your Letter. Make it white on top of the black tag. Merge the layers together. Take the magic wand selector and select the white Letter part. Once it is selected delete it. You should be left with a black tag with the Letter cut out. Then choose the paper or color you want your tag to be. Place it over the black tag shape, Hit CTRL G and it should cut out the paper in the shape of the tag and the letter part should still be cut out.
Then if you are looking for a chipboard effect around the edges to finish the tag, there is an action at Atomic Cupcake that makes a chipboard effect and I believe she has one for PSE.... I haven't used this myself but you might check it out and see if that is the effect you are looking for. If I am way off base, it might help if you had a picture or an example of what you are looking for. Otherwise I hope that helps you out....

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