Not bare bottom at his age. Mine won't be the popular advice... but paddling has a history of effectiveness when it comes to "mouthiness".
Of course, make certain you don't go around "badmouthing" other people yourself and then punish the child for rudeness. The best way for him to learn respect and courtesy is to see it modeled by adults. If he doesn't, he'll merely see your punishment as unfair (which it truly would be).
The pain inflicted by rudeness is instantaneous and I think the punishment should be nearly as quick.Denial of privileges seems too far removed from the actual offense. You want him to remember the paddling as soon as he thinks of smart remark to make. Inflict pain, but not injury.