Beat butter in a large mixing bowl with an electric mixer on medium speed for 30 seconds. Add granulated sugar, baking powder, nutmeg, and salt; beat until combined. Beat in egg and 3 tablespoons wine. Beat in as much of the flour as you can with the mixer; stir in remaining flour. Divide dough in half. Cover and chill about 2 hours or until easy to handle.
Roll each portion of dough on a well-floured surface until 1/8 inch thick; keep remaining dough refrigerated. Cut into desired shapes. Place cutouts on a lightly greased cookie sheet.
Bake in a 375 degree F oven for 5 to 6 minutes or until edges are firm and just beginning to brown. Transfer to wire racks to cool. Meanwhile, for the wine glaze, heat 1/4 cup butter (no substitutes) in a small saucepan until melted; remove from heat. Stir in 2 tablespoons California dessert wine and powdered sugar. If desired, tint with paste food coloring. Blend until smooth. Use a pastry brush to brush cookies with glaze. If desired, sprinkle with colored decorating sugar. Makes about 20.