Heat oven to 350°F. Line cookie sheet with cooking parchment paper.
Sprinkle 2 tablespoons of the flour on work surface.
On floured surface, roll half of the dough to 1/4-inch thickness; place remaining dough in refrigerator. With 1 1/2-inch star-shaped cookie cutter, cut out about 18 small star-shaped cookies. Place on ungreased cookie sheets. Repeat with 2-inch star-shaped cookie cutter and 2 1/4-inch star-shaped cookie cutter, using remaining half of dough, rerolled dough scraps and flour.
Bake 6 to 10 minutes or until light golden brown. Remove from cookie sheets to cooling racks. Cool completely, about 10 minutes.
In small bowl, mix powdered sugar and enough water for desired spreading consistency; stir in food color. Frost and decorate cookies as desired; let stand about 15 minutes or until frosting is set. Place 2 1/4-inch cookies on platter, stack 2-inch cookie on top of each larger cookie, with star points alternating. Top with 1 1/2-inch cookie, with star points alternating, to form tree shape. (See photo.)