On the January 28 edition of Fox News' The O'Reilly Factor, Fox News contributor Dick Morris cited as a reason the American Recovery and Reinvestment Act of 2009 “won't work” that “two hundred billion of it is just money to the state. That just stops taxes from going up, but it doesn't stimulate anything.” However, in 2008 congressional testimony, Mark Zandi -- the chief economist and co-founder of Moody's Economy.com, who was reportedly a McCain campaign economic adviser -- stated that “aid to financially-pressed state governments” is an “economically potent stimulus.” Zandi included with his written testimony a table stating that “General Aid to State Governments” would boost real GDP by $1.36 for every dollar spent, a greater “Fiscal Economic Bank for the Buck” than permanent or temporary tax cuts, which Morris claimed are “stimulus.” A table produced by the Congressional Budget Office (CBO) similarly shows that “Transfers to State and Local Governments for Infrastructure” and “Transfers to State and Local Governments Not for Infrastructure” produce a greater “cumulative impact on GDP” than tax cuts.

During the segment, Morris stated:

MORRIS: The reason the stimulus package won't work is just simple math. Two hundred billion of it is just money to the state. That just stops taxes from going up, but it doesn't stimulate anything. Another 150 to 200 billion of it is good, solid, important spending. But because it is, they can't do it for a year or two or three because it takes a lead time, public works projects. And the 400 million is stimulus. That's largely through business and personal tax cuts. So 400 billion over two years for a $14 trillion economy, that's 1 percent a year. [...] Even assuming people spend the money, which they won't.

However, in July 24, 2008, testimony for the House Committee on Small Business, Zandi stated:

ZANDI: Another economically potent stimulus is aid to financially-pressed state governments. This could take the form of general aid or a temporary increase in the Medicaid matching rate, to help ease the costs of health coverage. Such help appears unlikely in the current stimulus plan, but this could quickly change in coming weeks if the economy's problems grow more severe and widespread as the legislation is being fashioned.

Fiscal problems have already developed in half the nation's states. Tax revenue growth has slowed sharply with flagging retail sales and corporate profits. Income tax receipts are also sure to suffer as the job market weakens. California and Florida are under the most financial pressure, but states as far-flung as Arizona, Minnesota, and Maryland are also struggling.

As most state governments are required by their constitutions to quickly eliminate their deficits, most are already drawing up plans to cut funding for programs ranging from health care to education and cutting grants to local government. Local governments are having their own financial problems; most rely on property-tax revenues, which are slumping with house prices. Cuts in state and local government outlays are sure to become a substantial drag on the economy later this year and into 2009.

Zandi also included with his testimony a table showing that “General Aid to State Governments” would boost real GDP by a higher rate than the tax provisions he analyzed:

Similarly, a table included in CBO director Douglas W. Elmendorf's January 27 testimony for the House Budget Committee indicates that transfers to state governments are more effective at stimulating GDP growth than the tax cuts the CBO analyzed:

Additionally, in his written testimony, Elmendorf stated:

Grants to state and local governments (such as increased assistance for education) might not increase state spending for the programs designated in the grants but, instead, might free up funds that the states would otherwise spend on those programs. States could use those extra funds in a variety of ways: direct purchases of goods and services (or smaller cuts in such purchases), tax cuts (or smaller tax increases), transfer payments, or reduced borrowing. The impact of grants therefore would depend on how states used them.

[...]

A dollar's worth of a temporary tax cut would have a smaller effect on GDP than a dollar's worth of direct purchases or transfers, because a significant share of the tax cut would probably be saved. The nonbusiness tax cuts in H.R. 1 would reduce revenues much more in calendar year 2010 than in calendar year 2009 because much of the reduction in taxes would be realized by households when they filed their returns in 2010.

As Media Matters for America has noted, media figures have also falsely claimed that provisions in the recovery bill that extend food stamps and unemployment insurance payments are “not stimulus.”

From the January 28 edition of Fox News' The O'Reilly Factor:

BILL O'REILLY (host): When you see the government trying to disguise the economic stimulus plan by masquerading as, you know, this is good for the economy --

MORRIS: Yeah.

O'REILLY: -- when it's a nanny-state deal -- and we talked about this --

MORRIS: Yeah.

O'REILLY: -- with your Trojan horse thing -- theory, I get a little dishonest. You know, but [President Barack] Obama goes on and says, “Look, I'm going to list all the spending here on Discovery” --

MORRIS: Yeah.

O'REILLY: -- “dot-gov.” All right? Is that what it is? Discovery? Something like that. We had it up in the “Talking Points Memo.”

But it seems to me, to be fair to Obama, if he's going to put all his expenditures there -- and he's gonna list them -- you can see it on your Internet screen -- he doesn't seem to be hiding anything. Is he banking on that Americans want a nanny state?

MORRIS: That doesn't bother me. Because if you're going to spend money on sex education or you're going to spend money on English, it makes no difference. It's the same economic stimulus -- you're paying a teacher. What matters to me is that before you perform the surgery, you administer the anesthetic and put the patient to sleep. And what the tax cuts in the economic stimulus package do, is by taking a majority of the American public and exempting them from the necessity of paying income taxes by his refundable credit and by getting them on the dole of $500 per person per year -- and that's going to go up -- you make them not give a darn if taxes go up or not.

O'REILLY: Well, that's the Democratic plan --

MORRIS: And then --

O'REILLY: -- though.

MORRIS: And then once you've --

O'REILLY: If you can get more than 50 percent not paying any federal income tax, they'll vote for us.

MORRIS: Once you put the population to sleep by that, then the knife comes out and you can really raise taxes on the rich.

O'REILLY: I'll tell you what, though. If what you say is true --

MORRIS: And by rich, I mean anyone over 60,000.

O'REILLY: -- and it doesn't work, the stimulation doesn't work and this year is very bad and then you start to see inflation, it's not going to get that way. Because they'll have to make an adjustment. Obama's going to go down fighting. Whether you like him or not, he's a fighter. He's not going to sit there and get hammered.

MORRIS: The reason the stimulus package won't work is just simple math. Two hundred billion of it is just money to the state. That just stops taxes from going up, but it doesn't stimulate anything. Another 150 to 200 billion of it is good, solid, important spending. But because it is, they can't do it for a year or two or three because it takes a lead time, public works projects. And the 400 million is stimulus. That's largely through business and personal tax cuts. So 400 billion over two years for a $14 trillion economy, that's 1 percent a year.

O'REILLY: All right.

MORRIS: That's not going to do anything.

O'REILLY: Numbers give everybody a headache.

MORRIS: Even assuming --

O'REILLY: I'm going to be a little bit more optimistic here.

MORRIS: Even assuming people spend the money --

O'REILLY: All right, all right.

MORRIS: -- which they won't.