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

That attitude is insubordinate and destructive to the unity of the outfit. A private corrective consultation would his first and last chance, to get squared away.

I would put him on his face right there on the spot, and maybe even given him some extra duty. As a Marine understanding instant obedience to orders could be the difference between life or death. This should not be and can not be tolerated

I think someone just volunteered to be the example of what not to do and why. His self destruction will be a good example for others.

That did not fly in basic or at my duty station, no matter what was going on in your personal life. If you were crazy enough to back talk you got smoked so bad you'd be lucky if you could walk afterwards. And if that did not remind you to keep your smart mouth in check then Art. 15. Order must be maintained in all facets of the Military. If you let a subordinate back talk you when you are assigning simple chores, this will give leave for the others to question your leadership in general. So, when it comes to hazardous duty stations you will have chaos. However, that private just volunteered him/herself up to be an example of how you will discipline anybody else who thinks he/she is above keeping their mouth under control. Lead by example :)

Immediately ask the Soldier, "What is it about you, that makes you think you should behave that way?" His response will determine step two.

In such a shituation as I once had,...I informed the smartass PFC, "Yes... it is '...going to happen'..."!!!
"It's a lawful order, whether you like it or not..."it's going to happen""! I ensured the platoon that I myself and senior leadership will be present in the motor pool to check on progress. If anyone, including PFC Dipshit had a problem with this, he needs to stand fast after dismissal. I also had PFC Dipshit drop at the leaning rest until I got tired. Once the platoon was dismissed, and PFC Dipshit was exhausted...I calmly explained to him should he make a another outburst in formation again, or challenge my authority, he would be facing more than the gravel, rather an Article 15 or worse.
He accepted and moved on to fofill the lawful order of inventory layouts for the commander.

Take him out for some one on one pt and wear his ass out. After he is done revisiting some pt nightmare from boot camp ask him if he would rather continue or complain.

It is to bad that political correctness crap found its way into the military. When I was in boot camp and out someone would have had a bad trip across a foot locker. No more disrespect.

Skull drag through the dirt for starters.

Discipline is the instant willing obedience to all orders. You can't allow this to happen anywhere because it may then happen in combat and cost lives and mission success.