How would you react to an E2 who "smart mouths" you in formation?

The same thing

KP for the rest of his enlistment !

Im prior service Marine from the 1980's, so probably would snatch his hind end up.

While I never made it high enough to learn how this would fly, here's what came to my head when this came up - keeping in consideration what a lot of people say that the "new" military's like (as compared to the "old" military where a full on verbal smoke and heaping of extra duty could be applied):

Immediately upon confirmation of "proposed" insubordination (read: that second talkback), call unit to attention and immediately hold a "back in training" moment - where the entire formation's encouraged to reply to questions geared to communicating the Military Way. Definitely cover the main bases of this issue (rank structure, where individuals stand within said rank structure, mandatory adherence to lawful orders, UCMJ effects of not doing so) - and immediately recheck with Pvt. Reluctant to see if he's learned the lesson and has "immediately self corrected" enough to be sent on the detail and invited to a post-detail counseling session where the paperwork's geared to evaporate after a few months of stellar behavior.
To confirm that this is "helping", mayhap having the formation at attention for detail handouts (preferably just Pvt Reluctant's, but not sure if that'll fly) over a week or two (rest of incident week and one full week) to help "re-ease" Pvt. Reluctant to "garrison standards" from "training standard".

My thought process behind this is because Pvt. Reluctant's a relative new arrival from the training environment (less than a year in), he's probably trying to "test the limits" of the "much looser" garrison protocols over the "tight" training protocols. Reminding him of the training environment may be all it takes to start getting some compliance out of him - but having the entire unit slip back to training protocols for detail assignment(s) may be just enough of an impetuous to help get some "peer pressure" on Pvt. Reluctant to shape up after the special retraining session is over. The reason I hope that the formation needs to be at attention for only Pvt. Reluctant's assignment is so that he can see how garrison works while he's undergoing a little personal "extended adjustment".

I would have a private conversation with this individual- they will be doing the assignment- but I need to identify the underlying conflict, too. There will be PT involved, team building exercises, and an overwhelming exercise of assuring who the E-5 is and why that is important to know. In the end, all the unit will understand that resistance is futile, but if I have a problem with this E-5, I should resolve that in an appropriate setting, as professionals.

I would discipline the E2 and give a direct order. Explain what will happened if the order is not followed.

since the E2 violated an direct order from a superior, that translates to Article 15; if he refused the Art 15, then as message to others the MPs are called and he is sent to the brig if a marine, stockade in Army.
Insubordanation should be tolerated.

send him to the C O

72 hrs in a training area with 3 MRE'S, shelter half, Alice pack in full field gear and 5 gallons of water.

I was an infantry medic with 4th ID 1-66 AR BN...their answer...private wengonna make you strong...for at least the next two hours...regardless of personal shit going on, you better have situational awareness and get your shit together no excuses or equivocations