BEAT butter, granulated sugar and vanilla in mixer bowl on medium speed until light and fluffy, about 3 minutes. ADD egg and egg yolks; BEAT on low speed until blended. Gradually ADD flour and salt, beating just until blended.

REFRIGERATE dough, wrapped in plastic wrap, at least 2 hours or up to 2 days.

HEAT oven to 350° F. WORK with half of the dough at a time, keeping remaining dough refrigerated. ROLL out dough on lightly floured surface to 1/4-inch thickness. CUT out cookie shapes using cookie cutters; PLACE 1 inch apart on parchment paper-lined or ungreased baking sheets. BAKE until edges are lightly browned, 8 to 10 minutes. COOL on baking sheets 1 minute. REMOVE to wire racks; COOL completely.

FOR ICING: COMBINE powdered sugar, meringue powder, butter and water in mixer bowl. BEAT on high speed until light and fluffy, 6 to 8 minutes. If icing is too thick, THIN with small amounts of additional water.