Do I need to keep paying for storage on my wife’s phone if I have the the 2tb plan

No need to keep paying.

I performed the exact same thing; when the AppleOne 2TB “family storage” was shared, the “spouses” 200 GB storage plan was automatically cancelled.

Similarly, the AppleTV+ “free year” (which only had 2 weeks remaining) transitioned seamlessly into AppleOne … complete w/ the added “first month free”

No “cancelling” of the existing legacy subscriptions was necessary.

I was quite impressed w/ how smoothly it all worked.

If you and your wife connect your accounts via family sharing you can share the plan together and you can cancel her plan.

Set up Family Sharing – Apple Support ->

Share an iCloud storage plan with your family – Apple Support

You are not paying for storage on her phone: you can't increase the storage on an iPhone. The 2TB plan is for storage online at iCloud which is accessible from both your and her phone. If she has had separate storage that will be cancelled and the balance refunded if you've enrolled her in a Family Plan - she can't have two lots of iCloud storage.