I don't know which way would be better, since I don't know the subtleties of citations in different fields. I'll just note that automatically applying this modest taint to papers that cite retracted papers is some incentive for the person to be discerning in what they cite.
Of course, some papers pretty much have to be cited, because they're obviously very relevant, and you just have to risk an annoying red mark appearing in your paper if that mandatory citation is ever retracted.
But citations that are more discretionary or political, in some subfields (e.g., you know someone from that PI's lab is going to be a reviewer), if you think their pettiness might be matched by the sloppiness/sketchiness of their work, then maybe you don't give them that citation, after all.
If this means everyone in a field has incentive for citations to become lower-risk for this embarrassing taint, then maybe that field starts taking misconduct and reviewing more seriously.
Of course, some papers pretty much have to be cited, because they're obviously very relevant, and you just have to risk an annoying red mark appearing in your paper if that mandatory citation is ever retracted.
But citations that are more discretionary or political, in some subfields (e.g., you know someone from that PI's lab is going to be a reviewer), if you think their pettiness might be matched by the sloppiness/sketchiness of their work, then maybe you don't give them that citation, after all.
If this means everyone in a field has incentive for citations to become lower-risk for this embarrassing taint, then maybe that field starts taking misconduct and reviewing more seriously.