“Wouldn’t it make more sense if the tail was small so as to not attract the attention of predators?”
No, if a predator is going to attack, you would want the attack to be directed to the least vulnerable part of the body. And the way that the squirrel is built with all that fur on the tail, the predator probably won’t get as firm a grasp and thus allow the animal a chance to escape.
But the tail can be so large as to attract more attention than is healthy.