tar does not do any compression. It simply has options to automatically pipe its output to a program that does compression for you, saving you a bit of typing. You still have to have have p7zip installed.
The difference between xz and 7z is that 7z contains extra data so that it can encode multiple files with msdos names. The underlying compression algorithm is the same. The multiple file support is not needed for a tar file since tar already bundles multiple files into one and with proper unix filename and permission support, and so that is why there is no option for 7z. Just stick with xz.