In the bowl of a stand mixer, or a large bowl with a hand mixer, mix butter, cream cheese, sugar, vanilla and egg on medium speed until light and fluffy.
Add flour and mix on low until all of the flour is incorporated.
Transfer dough to a smaller bowl, cover, and refrigerate for at least two hours, or up to 24 hours.
When ready to make cookies, preheat oven to 375 degrees. Lightly flour the counter or wherever you plan to cut out your cookies. Lightly flour the rolling pin as well. Working with small amounts of dough at a time, roll out the dough to about 1/4 inch thick.
Cut the dough into the desired shapes with your favorite cookie cutters and place on ungreased cookie sheets about 1 inch apart. I like to use small amounts at a time, rerolling the scraps to make additional cookies and then when I have finished most of that dough, add some fresh dough from the bowl and roll it out again. The more times you roll out the dough the warmer it gets, which can make it harder to work with, so as you add fresh, cooler dough it helps it become easier to cut out again.
Bake for about 6 minutes until the edges and bottom are lightly golden. Remove from cookie sheet and cool on a wire rack. When completely cooled you can decorate with your favorite icing. We love to use buttercream. Alternatively you can decorate the cookies with sprinkles before you bake them and have them already decorated when they come out of the oven. (I prefer to decorate with frosting and sprinkles after they are baked, partially because the frosting is delicious, and partially because it is easier for kids to work with the dough already baked. However, as I kid we always used to decorate with sprinkles first, and that was really fun too!)
