In large mixer bowl combine butter and cream cheese.
Beat until well combined.
Add sugar; beat until fluffy.
Add egg, vanilla and extract; beat well.
In medium bowl stir together flour and baking powder.
Add flour mixture to cream cheese mixture; beat until mixed well.
Divide dough in half. Cover and chill in refrigerator about 1 1/2 hours or until dough is easy to handle.
On lightly floured surface roll dough to 1/8 inch thickness. Cut with desired cookie cutters.
Place on un-greased cookie sheets. Bake in 375 degree oven for 8 to 10 minutes or until done.
Remove to wire racks; cool. Pipe or spread frosting on cooled cookies.
For frosting: In small mixer bowl beat 2 cups sifted powdered sugar, 2 tablespoons of softened butter and 1/4 teaspoon of extract until smooth. Beat in enough milk (4 to 5 teaspoons) until frosting is of piping consistency. For spreadable frosting, add a little more milk. Garnish as desired