How to build up (or repair) this toilet outlet
I would absolutely be cutting concrete. You have an ideal opportunity to do so since you're overlaying the floor anyway.  You don't want to deal with clogs later due to pipe reduction from an extension, and you want the stability a proper flange provides.
Rent or borrow a diamond saw, cut out a 24&quot; square, and fix this up right with a full-size pipe. Mix up some bagged concrete and pour it to the level of the new subfloor for a stable base (just as you describe). Use strips of the foam and sheathing as a form.