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

You have the E2 report to your Office. You do not assign any one else to the duty. You have a witness to your interview of the young man/women.
You give him/her the chance to follow a direct order with the knowledge he will be written up either way.
Move on, a lot more GOOD people need your leadership.

Tell him he's got a handful of seconds to get on the task, or we're gonna do it the hard way, The Marine Corp way....ooorah!!

Direct counseling

Front leaning rest for about 5 hrs then a good long march full battle rattle and then a few hrs of holding his weapon over his head and see if that helpd

All military branches should have contracts where you can opt out honorably up to a certain point. Maybe people feel stuck or they learned the service isn't for them but don't want to discredit their name I.e. they are good soldiers. This would promote people who want to be there and easily take out all the people who are mumbling and grumbling. Then you are left with people who will do the work because they want to be there. Think about it before you burn me.

Smoke session he will never forget

I would have to say back when I was in I would have instead of a stick to the throat. An open hand slap to the face works wonders for a smart mouth . I remember a gunny who slapped the taste out of my mouth. Taught me quickly how to be the best marine I could be

I'd address that issue in a counselling session

Max penalty for insubordination

The same thing