Sounds like your ignition is finished, you have 2 choices, run a push button start from your starter to button to the battery or 12V source when Ignition is ON, Choice 2...By a new ignition and have 2 keys and big red ENGINE START buttons
Based on this evidence there's a 99.9% likelihood you have a bad ignition switch. Ignition switch failures are very very very common on MK2s and MK3s... did I mention they are very common.

The part that needs to be replaced is just the electrical switch.. the key tumbler stays in place and so you won't need new keys.
It's a 10 buck part but is a bit of a pain to remove since the steering column has to come out and this may require a puller for the steering wheel spline adapter. Search for "ignition switch" over on the MK2 VW Vortex forums and you'll find 3 or 4 really good pictorial HOW-TOs.
I have a steering wheel puller, would that work? I have already removed heorn button, found out the horn doesn't work .
A steering wheel puller won't work for the part Vince is talking about. However, I don't think they started using the adapters until about '88 so your '85 might not even have it.
The steering column shouldn't have that press-fit adapter "collar" on a 1985 model, they put it on later models. I thought it went on airbag equipped models but I could be wrong.
If you have this thing on your steering column you need what is called a "bearing splitter" (google it) to grab behind the collar and you use it with a standard threaded puller. The bearing splitter costs about $40 for a good one, I have one.
I ordered the electrical part of the ignition switch and it should be in tomorrow. Bad part is I"m working overtime and might not get the chance to install it for awhile. I checked and the switch from Oreilly's is going to cost $38.00 plus tax. They had one listed cheaper but it out of stock. OEM only.
how many other cars can you steal with nothing but a piece of wire?
Yeah, but it sucks when you get to that first turn and the steering column goes click and you go careening over the embankment because you didn't have the key and the steering column locked... 
carry a spare VW key with you. the column wont lock if theres a Key in it, doesnt even have to be the right one. i used the key for my Jetta in my audi to get it to my buddies house. the wheel wasnt locked YET, so i just stuck a key in the ignition to keep the lock form engaging. worked fine. but once its locked, you absolutely have to unlock the ignition, or break the lock pin.
I returned the store bought switch and ordered one off the internet for $20.00 including shipping. Supposed to be here by tuesday.