In large bowl, combine sugar, 2/3 cup butter, vanilla and egg; beat until light and fluffy. Add 1 3/4 cups flour, baking powder and salt; mix until well blended. Cover with plastic wrap; refrigerate 1 hour for easier handling.
Meanwhile, in small bowl, combine powdered sugar and 1/4 cup butter; mix well. Add 3/4 cup flour and milk; mix at low speed just until blended. Add additional flour if necessary to reduce stickiness. To half of topping dough, add green food color; mix well. Divide remaining topping dough in half. Add yellow food color to one half; mix well. Add red food color to other half; mix well. Place 3 topping doughs in separate decorating bags fitted with desired tips or resealable food storage plastic bags with small hole cut in one bottom corner of each.
Heat oven to 375°F. On lightly flowered surface, roll out half of cookie dough at a time to 1/8-inch thickness. Keep remaining dough refrigerated. Cut with floured tree-shaped cookie cutter. Place 1 inch apart on ungreased cookie sheets. Decorate cookies as desired with colored dough in bags.
Bake at 375°F. for 6 to 9 minutes or until firm and edges are light golden brown. Immediately remove from cookie sheets. Cool completely.