In a large bowl with a hand mixer, or in the body of a stand mixer with the paddle attachment, add the cream cheese and the butter and mix on medium-low speed until smooth and combined.
Add 1 and ½ cups of the powdered sugar and mix in on low speed until combined, scrape down the sides as necessary.
Add the egg, baking powder, vanilla, and salt, mix in on medium-low until combined.
Add in the flour a little at a time until fully incorporated, scrape down the sides, and mix again for a few seconds.
Place 1 tablespoon-sized dollops about 1 inch apart on a parchment-lined baking sheet, I like to use a 1 tablespoon-sized cookie scoop for this. Cover with plastic wrap and place in the fridge for at least 2 hours, or best overnight if you have time.
Once the dough has chilled, preheat the oven to 375°F. Place the remaining ½ cup of powdered sugar in a small bowl. Take the dough dollops and roll them in your hands to form a ball, roll the ball in the powdered sugar, making sure to coat it well.
Place cookies on another parchment-lined baking sheet, repeat with the remaining dough and place them 2 inches apart. Bake for 8-10 minutes until the cookies are puffed and the tops appear mostly dry.
Take out of the oven and let the cookies cool on the tray for 10 minutes. Using a spatula, transfer the cookies to a wire rack to cool completely.