12ga for squirrel? Don't you want to have some left over to eat?
I'd go with a .22lr, more than enough for squirrels and good for rabbits. It's much more available and much cheaper than .17 so that's a big plus. I'd only go with the .17 if you were planning on hunting them at ranges over 75-100 yards where the accuracy and flatter trajectory of the .17 will help.